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Use Automatic Payments to Keep Finances on Track
Several years ago, Sarah and I realized that our strategy for keeping the bills paid was less than ideal. We’d receive bills in the mail or digitally and then sit down once a week to either pay them online or write a paper check for them.
While this worked well most of the time, there were several problems that kept cropping up. If a paper bill wasn’t delivered or was misplaced for some reason, we were dinged with a late fee. I felt uncomfortable mailing paper checks, even with securing mailed checks. Also, it was just a weekly hassle that I didn’t want to deal with.
Over the next few years, we gradually moved to paying all of our bills automatically, and that’s how we pay virtually all of our bills today. Our bills are just paid near their due date, without either of us having to lift a finger, and we check our account once a week or so for a moment or two just to make sure everything’s in order. Once a month, I’ll usually sit down and review things more carefully.
This system, once it was in place, drastically reduced our time spent paying bills and basically eliminated late fees of any kind. It does have a couple of small drawbacks, but the benefits vastly outweigh the drawbacks.
How do we do this?
Many of our bills are sent automatically to our bank and can be paid automatically through online banking.
At the core of our system is our bank’s robust online banking features. These allow most of our bills to be sent directly to the bank and then paid automatically close to their due date. Our energy bill, our cellular bill, our water/sewer bill, our garbage bill, and a few others work exactly like this.
For those bills, there’s no effort that needs to be made at all to pay the bill. I review each bill once a month during my monthly review, but the actual act of paying it requires no effort at all once it’s in place.
So, for example, our cellular bill is usually due around the 20th of each month. The amount owed is sent automatically to the bank and is paid automatically three business days before it’s due. I can go online at any time and look at the cell bill statement, but I don’t have to think about paying it. It just happens.
If you want to do this, look at your bank’s online banking features and see whether or not you can set up automatic bill pay. Many banks today offer this feature.
For other bills and investments, we have automatic transfers set up to pay them.
Most of the rest of our regular bills are paid by automatic transfer. Within our online banking service, we’ve set up a handful of automatic payments and transfers that happen on the same date each month. This is how we pay for things like insurance (we actually have this set up as a quarterly payment), Roth IRA contributions, 529 plan contributions and a few other odds and ends.
These payments go out automatically on the date that we set for them, and they’re set to repeat on a schedule that matches when those bills are due. Again, we don’t even have to think about them.
For example, our garbage bill is the same amount every time we’re billed. It’s always due on the first day of every third month. So, I’ve got it set up to send that exact amount as a payment on the 26th of every third month, four or five days before it’s due. I never have to think about our garbage bill unless the rate goes up or something changes. It’s just done automatically. I can’t even remember the last time I did anything regarding our garbage bill.
Our other expenses, such as food and household supplies, go through a credit card, which is paid in full automatically.
All of our food and household expenses are charged through a pair of credit cards (Sarah and I each have one, mostly so that we can keep gifts and surprises for each other secret). I keep an eye on the statement for my card and she keeps an eye on hers. If either of us feels like something is awry, we can look at the statements for either card, but I don’t think either of us has had a reason to look in many years.
Typically, these are set up to be paid in full automatically near their due date, like all other bills, but my credit card bill is the one bill that I do check each month before it’s paid automatically, which is usually the date where I check all of the other bills. This “check” doesn’t take too long and usually involves just clicking through the bills, reading the items on the bill, and making sure everything’s in order.
Why do I check it? I want to make sure there’s not accidentally some incorrect charges on the bill that inflates it to the point that we might even come close to overdrafting. This could happen in a situation of identity theft or a false charge or something else like that.
In emergency situations, where I have to put a car repair or unexpected travel or something like that on the card, I just move extra money from our emergency fund into checking to cover it when I do that monthly review.
I have a monthly reminder set up to review our account carefully. Once a month, my phone starts nagging me to look over our credit card bill and other bills, and that’s when I do it. I usually do it about a week before our credit card bill is due so that I have time to make changes as needed (such as moving money in when there’s an emergency).
It is now extremely rare that we write any paper checks or do any ATM withdrawals. Those expenses almost never happen these days. Almost all of our bills are paid fully automatically, as described above. Most of our bills go directly through our bank and are paid automatically; a few others are paid with a monthly or quarterly automatic payment.
Overdrafting is a risk, but smart steps minimize it.
With everything on autopilot, there’s almost no risk of ever being late on a bill. However, there is a risk of overdrafting, especially if your bills and automatic investments often add up to an amount that can approach your monthly take home income.
We solve this with two strategies.
First, we keep a healthy buffer in our checking account. We usually have enough in checking such that all of the bills for at least the next month would still be paid with no problem even if we didn’t have any income at all. We never even get close to a low balance.
Second, we have a bunch of low balance account alerts set up. We get an automatic text message if our account balance ever goes below a fairly high number, and that’s a sign to go check things right away.
In addition, we try to avoid using the checking account directly for anything. We don’t use our bank card for any spending, as we channel that through credit cards that are paid in full. We rarely even use them at ATMs, and we almost never send paper checks. Thus, there is little opportunity for a bad actor to gain direct access to our checking account.
Those steps add up to a lot of peace of mind. Even if I missed out on my monthly review, things would likely keep trucking along as normal with no problems.
Automatic payments mean less time spent banking, no late fees and if done smartly, no overdrafts.
It does take some time to set up all of your bills to be fully automated, and it does require a bank with a robust online banking service. However, once it’s in place with a good buffer in your checking account, your bills will just get paid automatically and you’ll spend much less time dealing with banking.