What to do when a bill changes mid-year

When a bill changes mid-year, the set-aside method asks for one thing: recalculate that bill's per-payday amount from the new figure and leave every other bill alone. Any gap that has already opened is a separate question, because a higher set-aside stops the gap growing but doesn't close it. And if what changed was one big bill rather than the price, there may be nothing to recalculate at all.

A notice turns up with a bigger number on it. Power has gone up, or the insurance renewal costs more than last year. The instinct is to tear the whole budget down and start again. It doesn't need that. Every other bill is exactly where it was, and the change lives in one line.

Is it a new price, or just a big bill?

This is the question that decides everything else, so it is worth answering before touching a single number.

A new price is a lasting change. A tariff increase, an insurance premium that renews higher, a subscription that has crept up a few dollars a month. Every future bill will arrive at the new level, which means the smoothed figure is now wrong and will stay wrong until it is updated.

A big bill is a one-off. A winter quarter when the heater ran every night, or a water bill after a dry summer in the garden. The smoothed figure was always an average of quarters like that and quieter ones, so one high bill doesn't mean the average has moved.

Recalculating after every big bill is the trap here. Power set aside at $52.31 one quarter, $66 the next and $48 after that, and the method has turned back into the guesswork it was meant to replace. The post on smoothing bills across pay cycles makes the same point from the other side: chasing every variation defeats the purpose, which was to stop thinking about it.

How do you recalculate one bill?

With the same sum as the first time, on the new figure. Yearly cost, divided by the number of paydays in a year. For fortnightly pay that is 26.

Say power has been $340 a quarter, and a price change notice puts it at $391 a quarter from here on. That is a 15% rise.

That's the whole recalculation. Rego, insurance and water don't move. One line changes, the fortnightly total goes up by $7.84, and the amount left over each payday comes down by the same $7.84.

What about the money that's already short?

Here's the part that catches people out. Raising the set-aside fixes the future. It does nothing for the past.

If power was funded at $340 for the quarter and the first bill at the new price comes in at $391, the account is $51.00 short on that bill, however correct the new figure is. Nothing bounces, because the float covers it: the rego and insurance money is sitting right there. So the $51 goes quiet. It turns up again months later, when rego is due and the account is $51 light, which is exactly the hidden borrowing described in the post on sizing a bills buffer.

People handle the gap in one of two ways, and neither is wrong.

Catching up in one go stings once and then it's finished. Spreading it makes each payday a little tighter for about three months, with a clear end date. Which one suits comes down to how much room there is in the leftover, and on a lean fortnight $51 can be a lot. Where there's a bills buffer, some people use a third route: let the buffer take the hit, then top it back up over the next few paydays, since absorbing a miss like this is what it's for.

What matters is picking one on purpose. The version that causes trouble is the one where the float covers the gap and nobody notices.

What if a bill goes down?

Same sum, opposite direction. It is easy to skip, because nothing goes wrong.

Say home and contents insurance renews at $980 instead of $1,120. The set-aside drops from $43.08 to $37.69 a fortnight, a difference of $5.39. Leave the old figure in place and the account simply ends the year holding about $140 that belongs to no bill.

Some people fold that into their buffer. Others move it back to the everyday account so the figure left over each payday shows what is really free. Either is a reasonable choice. Not noticing is the only version that costs anything, and what it costs is $140 sitting idle with no job.

How often is it worth checking?

Once a year covers most of it. Price changes tend to announce themselves anyway, because renewal notices and price change letters arrive with the new figure printed on them. That letter is the natural moment to update one line, and it takes a minute.

Bills that vary with usage get a slightly different look. Add up the last four quarters, divide by 26, and see whether it lands near the current set-aside. A dollar or two either way is not worth acting on. Small differences can wait. If the account has come up short on the same bill two or three times running, though, the smoothed figure has drifted and that bill is due for a recalculation.

Changing a bill in the app

The recalculation is the easy bit. Keeping track of the gap is the part that slips, because it does not show up anywhere until months later.

That's the part I built EachPayday to handle. Change a bill's amount and its per-payday figure is recalculated for you, on whatever pay cycle you are on. The Bills account card projects the lowest the balance will reach before your next pay, and if the account has fallen behind, it folds a top-up into the one Move into Bills figure it asks you to move that cycle. When a bill has gone down and the account holds more than it needs, Move money takes the extra back out.

You can open the demo and edit a bill on sample data, or see how the whole method fits together in the payday budgeting method guide. There's nothing to sign up for.