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.