Updated on 06.15.07

Budgeting In The Era Of Online Bill Pay

Trent Hamm

Recently, I sat down with my parents and had a lengthy discussion about a lot of financial issues (a separate ball of wax that I’ll deal with in another posting). During one part of this, my parents showed me the way they manage their monthly budget, mostly utilizing a steno pad, a calculator, and their checkbook. When I told them that I basically no longer write any checks and do almost everything online, they basically didn’t believe me until I walked them through my system of managing money in this era of online services.

Given that, I thought it might be interesting to provide a glimpse of how I manage my finances on a monthly basis.

First of all, I have all of my clearly defined payments already set up to automatically deduct from my checking at the appropriate time each month. This includes transfers into my son’s 529, my investment accounts, my student loan repayments, and my rent payment (which will soon transmogrify into a house payment). These all happen automatically, without even a second thought.

How does one do this (if you’re not already doing it)? Get a checking account that has online bill pay (I use ING Electric Orange) and follow the instructions. It takes some time to get things set up, and you need to check that the payments are going through at least the first time, but after that it’s automatic.

What about the undefined payments, like the varying utility bills and other bills? I merely set up online bill pay so that all I have to do is drop in the number each month and forget about it. I usually do this twice a month, going through any unpaid bills like this, and it’s done in just a few minutes.

Because of these two things, it is extremely rare that I have any need to write a check. I literally have not touched my checkbook in months. If I have cash needs, I merely visit an ATM and withdraw cash. When I want to check my monthly budget, I fire up my web browser and my copy of Excel (I use Excel to keep my actual budget so that I know what I can safely withdraw for various purposes).

The whole thing feels nearly automatic. I rarely have to sit down and “pay bills” any more – when I want to get in touch with my numbers, I just do some clicking on my laptop and I can see every view of the information that I want. It does take a bit of startup effort, but once you’ve entered all of your account data and started the routine of having many of your bills paid automatically and the other ones paid by typing in an amount and clicking on “Submit,” you’ll never want to go back.

As for my parents? They’re pretty comfortable with their method of keeping track of bills – it’s worked well for them for thirty years and their system, due to familiarity, is quite fast on its own.

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  1. Morydd says:

    The only checks we write are for rent. This is only because our landlord does not want to recieve checks by mail, so she comes over and picks them up. The checks we’re using have our addresses from two moves ago on them. The bank (which has also changed names since we got the checks) said it doesn’t matter, so we’ll keep using them. I use MS Money and Chase, so I can do everthing in a few clicks in one program…
    It reminds me a bill is due, how long I have to submit to be within the time it takes the bank to process electronicly or a paper check. I fill in the amount and schedule it. It works well for me.

  2. Phoenix says:

    I took this one step further–all the fixed payment amounts are autopaid from the checking account, and the variable bills–utilities, etc are charged to a rewards card. An autopayment representing the approximate average of the variable bills is made on the credit card each week, and I review the incoming charges online, again weekly. The credit card allows me to challenge the utilities if needed, without tying up the money in my checking account. My husband and I sit down weekly and review all receipts, new charges, and balances, and once a month make a payment adjustment to the credit card to ensure the entire balance is paid off, but not overpaid. The system means my entire time commitment to finances is about 2 hours a month in half-hour increments–but being obsessed with numbers and graphs, I usually spend longer than that looking at the results :)

  3. Grant Boston says:

    In my area most utilities companies will set up a direct debit to your account that debits the exact amount from your account. There is no need to manually enter amounts.

    If you have the discipline to pay everything off I like Phoenix’s idea of paying everything on the credit card – what do you think Trent?

  4. TheLocoMono says:

    Online bill pay is really for the younger generation or the Internet-savy folks. I do not know of any people older than in their 50’s who uses online bill pay. It is the new wave of the future. I worked for a major Fortune 500 company when we started this and it sent our profits skyward.

    Be sure to have enough money in your accounts otherwise you need overdraft protection in case you have to withdraw from your checking account for unforseen reason because the bank will still hit you with fees along with the company you are paying.

  5. Amber Yount says:

    For the utilities, I just set up auto-pay through my utility’s company’s website…then they automatically take it out

  6. Phoenix says:

    I went with the credit card idea as I very much dislike giving anyone the authority to debit my checking account without telling me how much they were going to take. I like the “cushion” of the credit card company and the dispute process–the only good thing I see about them to be honest.

  7. !wanda says:

    Auto-pay for variably changing bills is sort of dangerous, if it means you don’t scrutinize your bills.

    I wish I could pay my rent online. My landlord, though, is an old, old man who literally doesn’t know what an email address is. (He asked me if it was like a fax. I told him, “Nevermind.”)

  8. Jim Lippard says:

    Phoenix–I share your dislike for giving out debit authority on my checking account, but I’ve done it for my utility company in return for a 1% discount. I’d use a rewards card, but they charge a $5.95 fee to charge a credit card, so the 1% discount is a better deal. I use a rewards card for everything else that accepts credit cards without penalty, and my bank’s free bill pay service for other bills. My most common use of physical check-writing is for cash gifts to individuals (e.g., birthday and wedding gifts).

  9. Checkbook Confessional says:

    A few months ago, I set up all of my bills (credit cards, telephone, car and renter’s insurance) to literally pay themselves through Bank of America’s eBill system. Like you, I haven’t touched my “analog” checkbook in months, and there is something quite liberating about having everything automated. I’m looking forward to adding automatic savings transfers into the mix. I no longer worry about missing bill payments!

  10. Bill says:

    I don’t do autopayment since my utilities became available online (they send me an email, and most still send paper bills as well)

    I also round up variable, but ongoing bills like utilities to the next dollar, or ten dollar figure.

    E.g. I electronically pay $100 on a utility bill of $98.67.

    I’ve found that much easier to reconcile if you still use paper records such as a check register.

  11. Larry says:

    Great suggestions. I autopay everything as well. For variable expenses, I use my banks online bill pay, and wherever possible on my utility bills I use the fixed amount payments so I have the same payment year round.

    I haven’t written checks in a long time either and it’s just one less thing I have to worry about.

    No using credit cards (i.e. reward cards) for me, everything comes out of my checking account. I don’t do credit cards.

  12. Jon Payne says:

    Why use Excel rather than something like MS Money or Quicken for your budget and account tracking? I use MS Money and love it. I just import all my transactions from my online banking center and then “approve” them to let MS Money know they are legit, and assign them categories. My wife and I use our check card for most purchases, this way we can track exactly what we spend on gas vs. groceries vs. clothing, etc. Very easy. I used to use Excel but unless you have a really pimped-out spreadsheet with tons of charts its much easier and more features with one of these personal finance software packages.

  13. Paul says:

    Having auto-pay set up can actually save you money. Last month I did not receive my Capital One statement in the mail. If I did not have my payment set up to automatically make a payment I could have been hit with a late charge, $39 in this case.

    E-payment also saves you postage. I typically make 8-10 payments per month. Over a year this really adds up.

  14. Ed says:

    I love ING Electric Orange. Most notably for the 4% interest rate.
    I was and still am, very pro credit union. I alway told my friends and co-workers about credit unions, no minimum balances, interest paid on checking (a measly 1.25%), lower loan rates, etc.
    But I am really excited about this EO account and plan on using that as the bulk of my bill paying. That is what I am going to to be preaching now.

  15. Ryan says:

    Financial talk for the rest of us? And you use the word transmogrify? Hehehe. Anywho dude… love your blog, found you via the msn early retirement story. Ill be coming back, im from Australia.

  16. martha in mobile says:

    I, too, rarely write checks. I use online bill pay from my bank for all my cyclically recurring payments. I let the amount from the previous bill carryforward — I adjust the amount when the new bill comes. This way, semi-annual payments like car insurance and life insurance show up a month in advance for consideration, and I can compare the previous charge to the amount on the current bill. All my “in person” and online purchases go on a rebate credit card. The annual rebate adds up to $300 to $500/year, which becomes family vacation money. Of course, this only works because I pay the credit card off each month. Thanks for sharing, Trent and commenters — it’s great to get ideas to fine tune my system!

  17. Autopay tends to work better for folks with a regular income. Those of us who are self-employed are never in that “rut” of knowing how much we’re getting, or when we’re getting it.

    That aside, I do enjoy paying bills online. But I sit down to do it, as Autopay would quickly create more problems than it would solve.

  18. a_m_m_b says:

    One caveat to “set & forget” with Bill Pay, double check your statements quarterly to make certain the payees have not changed their payment addresses. Working the Web Bill Pay support queue at my employer I see alot of members failing to do that & getting “nasty grams” &/or penalties from their payees regarding missing payments.

  19. Steve says:

    I do not do automatic payments because I want to control when the money comes out of my HSBC savings account. I figured that between the due date and the delinquent date, I can earn some interest. So I let my money sit until it is time to pay the bills, and then I move the money from the savings to the checking and then go to the utility company website to pay my bill. If it takes a couple of days to hit my account, a few more cents in interest. I am so strict on paying my bills when my reminder pops up because I know that any slip would spell disaster. May be I live my life like I am playing Chess. Squeezing out every advantage I possibly can.

  20. MVP says:

    I love the convenience of paying online through our credit union, and I’m often shocked when I hear friends say they still don’t trust that method (they fear computer-based theft and fraud). For me, the benefits outweigh the risks, and frankly, I’ve experienced more problems paying by check than online. Also, we use the free PearBudget system, which is available for download online, to do our budget. We used to do it on paper, but then switched, so now everything’s in one simple place: the computer. Also, even though we pay online, we still scrutinize our bills – there’s no reason you can’t. I guess the difference between that and autopay is we’re telling our credit union how much to send to whatever company; we’re not authorizing that company to just take whatever amount out of our account. However, we’ve paid a few bills, like Netflix, on autopay for years. It’s the same cost every month, and we’ve never had a problem with them taking more than they’re due. But yes, there are some companies, like the phone company (Verizon, the crooked jerks!) that I wouldn’t trust putting on autopay.

  21. gabe says:

    For my “variable” bills, I made them static. My natural-gas company has a “budget” program and my utilities company allows me to do this myself. Basically I pay the same amount a month between Jun and Oct (they/I review the current usage, recalc an average), then pay the same Nov to Mar (another review) same amount Mar through May. At which point the balance (mine or theirs is due). I just started this and will prob actually pay the balance (if it is mine) at the Nov/Mar/Jun times. Doing this allows me to set the payment to be automatic. As for the cell bill (the only other one that could be variable though never has been), I have it auto paid from my checking account (I don’t allow anyone else to take money out automatically). And then I check my bill and make sure it is the full amount. Works for me. Yes I know I could earn interest on that money but this requires less discipline and less scrambling (money-wise) during the winter.

  22. Prasanth says:

    I also use ING EO for paying bills online except for my rent which i pay using a check as the property management company does not accept online payments.

  23. Mardee says:

    Steve, many companies will let you pick the date of the automatic withdrawal (and almost all credit card companies give you that option). My bills are not scheduled to be paid until the due date – however, I then have the luxury of scheduling everything at one time, rather than piecemeal.

    By the way, if your utility company doesn’t have automatic withdrawals yet, contact them. My water company was the last to fold but finally did after I contacted them on numerous occasions. Now they send me a notice about one week before the bill will be deducted from my account.

    I also use Electric Orange in combination with a credit union as my linked account. I can still use the credit union account when I need a quick check (which I only use for the boy who cuts my grass, since I’m never sure when he’s coming) but am gravitating more and more towards my ING accounts.

  24. plonkee says:

    After a few late payments on my credit card I now have everything set up to be paid automatically. I couldn’t do it any other way anymore.

  25. PF says:

    We have an idiotic gas company here and one month they billed us for $1400 because one of their employees read the meter wrong. I will never let them near my checking account or even my credit card; they are so dumb. The other utilities, I have set up on a rewards credit card and it really works out very nicely.

  26. Gert says:

    Another handy trick is having you’re direct deposit sent to savings and then having a automatic transfer to checking. I find this keeps me on track for savings and I have the added bonus of using my overtime pay for large items I want and would oterwise not be able to afford.

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