Everyone talks about how automating your finances can both save you time and money. We are encourage by the personal finance community and the creditors to automate our payments to save time, money and the environment. I personally have automated almost every payment and saving transaction that occurs in my household. I have cut my mail down by opting out of credit card offers and getting “e-statements.” Each time we automate a transfer or the paying of a bill we are removing ourselves that much further from the management of our money. While the benefits are relatively obvious people seldom consider the down side of automated financial transactions.
Utility Bills – Your utility bills are fluid, they fluctuate up and down from month to month, unless you are on one of those even pay programs. The fluidity itself doesn’t lend well to automated payments as your payment amount changes every month. That fluctuation usually isn’t that bad and you can tell whether it will move up or down based on the weather but if you budget tight you may not have wiggle room when the payment comes out. Your biggest fear should actually be the estimated usage. There are months when the utility company will actually guess what you used in power instead of coming out and reading your meter. I have seen bills be $100’s of dollars off from a bad estimate. That is going to be a big shock when it hits your account.
Billing Errors – If you have ever been a customer of the cable company that won’t be named then you know what a billing error is. Companies make mistakes, sometimes more than others. I once got a cable bill for $500 higher than it should have been, but that is a story for another day. If I had that bill on autopilot it would have been paid then when my mortgage went to get pulled my mortgage would have bounced and that would have been bad.
Security – When you are doing all of your financial wrangling online you have to be able to login to every account you have. Most people are going to use a single password on every site. This creates a single point of failure for your financial kingdom. Prior to the internet and automated payments your only concern was someone physically snatching your mail out of your mailbox. In a lot of instances it is easier to get at your desktop than your mailbox.
The E-Statement – The e-statement is actually what makes most of the other pitfalls possible. Most companies now are pushing for you to sign up for the e-statements as opposed to them mailing you paper statements. This saves the company on postage, paper, ink, and envelopes. What you get is a statement “reminder” in your inbox whenever the bill is do. This is the problem. You don’t get the full statement, it is super easy to just push it off and forget about it without ever looking at the detail. Those details are what keep you from paying ridiculous fees at your bank or overpaying for billing errors.
The Cascade Effect – When a billing error occurs that you don’t catch, it gets pulled out of your bank account. Depending on how much extra was pulled out it could cause a ripple effect. If you have other automated bills lined up they could start bouncing as a result of the first error. The bounces are going to cost you at the bank and be hell to sort it all out. It is important that you still keep up with your bills and know who to call if something goes wrong so you can head off the ripple effect.
I am not trying to talk anyone out of automating their finances, I personally only have two bills that aren’t paid automagically and they are both utility bills. The point is to keep in mind where things can go wrong and for the love of god look at those e-statements when they come in.
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I am a HUGE advocate of automation in many areas of one’s budget, but I think that your method is slightly different. Rather than having to setup bill payments with each of your payees (using their service instead of your bank’s), there are added layers of administrative costs (your time) and risks (your money).
Here’s how we do budgeting and bill payment:
1. All bills receive a recurring payment through our bank’s bill pay system.
2. The amounts are the same each and every month including utilities and other variable amount recurring bills.
3. A credit builds up over time with utilities companies and each December, we simply skip a payment online and use the money to buy gifts for the holidays.
We do NOT setup any kind of bill payment with anyone outside of our bank. The reasons, as you mention, is that you can get a surprise that can cause a cascading problem throughout your financial life.
For all of our other expenses that don’t come on a bill, we use cash for everything except for gas (it’s a pain to pre-pay and go back to the pump). For gas, we have a weekly budget allowance that changes based on any significant swings in gas prices.
By doing things this way, you can (1) eliminate shocks to your finances from strange/incorrect bills, (2) reduce your time going to various sites and manage things from a single place, (3) balance your checkbook a year in advance, and (4) create a kind of forced savings by overpaying a bit during the year so you have more money when you need it most – during the holidays.
Also, because we have this forced savings built in, we are more conscious of our energy usage throughout the year. By doing some basic energy conservation things (installing CFLs, putting electronics on power strips that are tied to a switch that turns off before bed, etc.), our energy bill has gone down each of the last three years. Last year we skipped two monthly payments and this made for a nice addition in November/December.
Or another way to pay the bills is to use the auto pay from the credit card site. I would NEVER allow my electric company (or any other biller) to access my bank account. I set up the autopay on my credit card and then I use ING to push a payment to the credit card company. The credit card does not access my bank info either and it is easier to get an error reversed if paid on the credit card.
I only automate our finances to a point. I don’t use any automatic withdrwal plans for bills and I only use online bill pay through my banks. That way I have complete control over our money all the time and any disputes should be easy. It does require that I manually send online payments but it only takes a second and it keeps my finger on the pulse of our income and our out-go.
none of my bills are automated since i find it easier to analyse the nitty gritty and see exactly how they work, this would be harder for me with automated billing but of late i have been seeing their advantages an seriously considering it
Very good points re: fluctuating bills and errors. I think bill automation is somewhat at odds with one of the principles of personal finance: awareness of your spending. How can you know if your spending way too much on gas and electric if you never look at your bill? Of course, one solution is to always look at your statements, but if you’re like me, you just file them without opening the envelope.
Jack I don’t think that automating means you never look at your bills. I have automated my electric bill where I set it up to be paid automatically via my Chase card. The electric company sends me an email that says what my usage is so I know before the paper bill comes. As long as it is under the budgeted amount then I don’t need to worry about it. Automating means that I do not have to go and pull out the checkbook and write a check for the amount every month. Now there are other things that go on the credit card and then I use ING to automatically send out a check to Chase so that my bill is paid in full every month. Everything is in Mint online which makes a graph that shows you what you are spending on and it is color coded to make the graphs stand out even more.
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