Recently someone told me about his budgeting method: he finds out that latest he can pay a bill without incurring a late fee and then mails the payment just in time. For some bills, this is normal because you incur a late fee the day after it’s due. (Hi, credit cards.) With other bills, you might not get a late fee until 15 days after the due date, but that doesn’t mean you should get in the habit of “budgeting” for late payments.
Budgeting to Pay the Mortgage Late
Mortgages are a prime example of this, and the example my friend used. He discovered that although the mortgage is due on the 1st, he doesn’t get charged a late fee until the 15th. So he pays it around the 14th. This is ridiculous. I expect that this pad was created to allow for three things: 1. Holidays and weekends that occur on the 1st, 2. slow or lost mail delivery, 3. Payment foul-ups like mistaken processing. It’s not an invitation to pay super-late every month.
In fact, it’s not a good habit go get into. What happens if there’s a foul-up with the payment you mailed on the 12th? What if the computers have an error in automatic billing? Now you have only yourself to blame for the late payment.
Budgeting for Late Utility Bills
Utility bills also frequently have long grace periods after the payment is due, but this is a dangerous game to play. If you mess up and mail your payment too late to miss the late payment cut-off, not only will you get slapped with a fee, but they could shut off your power, gas, water, or phone. Is that a risk worth taking?
If you can budget to make the payments late, then you can budget to pay them on time. Yes, you’ll have to spend less for one month, but then you can get on track to pay your bills when you’re actually due. Gaming the system by paying after the bill is due but before you incur a late fee is a slippery slope that could quickly lead to multiple late fees.
So why does he due date chase? So he can spend whatever he wants in the meantime. He doesn’t want to budget his money or spend carefully. He’d rather live on a whim and scrape together the cash at the last second.
If you’re really strapped, then these extended grace periods are a boon, but you shouldn’t plan for them so you can spend whatever you want in the meantime. Instead, sit down and make a real budget. If you can’t do that, then you need to cut your spending so you can pay the bills when they’re actually due.