By Ted Jenkin, Contributor Fea Money Financial Literacy School. Photo Credit Unsplash
The “out of sight, out of mind” philosophy is the preferred approach by some people when it comes to investing, based on the idea that you’re less likely to spend your money when you don’t have immediate access to it. It seems that “out of sight, out of mind” is also the philosophy preferred by young people when it comes to managing their monthly bills—in this case, the philosophy has manifested itself in the form of automatic bill payment. But is it really a good idea to pay your bills via auto pay? Here are my pros and cons on bill management through an electronic process.
Pros
You Help Save the Environment
Paying bills online can do a lot to help save the environment. It not only saves money, but saves trees, water, and many other resources. The additional cost of making paperwork come from your bank may invariably cost you more if your bank has to add extra costs over time. In fact, I think that you’ll eventually see all banks start charging an extra fee for paper statements. To this end, you could be doing yourself a favor by paying your bills online and opting out of paper statements from either a specific vendor or your bank.
You Save Yourself Time
To this date and time, nobody enjoys that one Sunday a month where they must saddle up to their home office desk and begin writing out bills. Not only is this time emotionally draining, but it can physically take you an hour or more each month to pay out all of your bills, address each of the envelopes, and appropriately handle your checking account. If you are in a relationship or living situation where you pay some of the household bills and your partner/spouse/roommate pays another set of bills, you may also have to engage in a monthly discussion about where the household finances stand, based on inflows and outflows.
It Works Well With Recurring Bills
If you generally have four to eight recurring bills—such as cable and mobile phone—the bills that come in at the same time and carry the same cost each month would be good candidates to select for the auto pay system. Of course, for utilities like gas and electric, you will need to pay attention to the seasonality of the bills, but I like the practical point of paying the basic recurring bills online each month.
Cons
You Stop Reading the Detail of Each and Every Bill
Systems like credit cards and electronic bills have certainly made bill payment a heck of a lot easier. However, there is a catch to this system that you should be aware of. Most people have a ballpark idea of what the total amount should be for their mobile phone, gas, electric, and cable bill each month. If the auto pay system shows the bill amount to be within the imaginary field goal posts you have in your head, you are likely to pay the bill without question. Companies have become wise to this concept and if they increase your monthly costs, they will do it in very tiny increments because they know you won’t likely realize the increase. The only time you may actually read a bill is if the amount looks incredibly disproportionate to what you thought the actual total was going to be that month. It’s important that you spend time reviewing your bill statements in detail, even if they come electronically through your banking system.
You Let the Computer Reconcile for You
I remember when I got my first checking account. Each month, I would take the time to reconcile both the credits and debits to my checking account against what I had actually written in my checkbook to make sure the balances matched. Today, I see most young people reconcile their actual balances by either, a) waiting to see what the ATM statement says, or b) checking online and assuming that the balance reported is the actual balance. We have become dependent on technology and thus have developed a passive management approach to our finances; yet, as many have undoubtedly experienced, technology can still fail us, sometimes with detrimental results, because our overreliance on its accuracy caused us to overlook the mistake ourselves. Even if you have auto pay, you need to take an assertive role in overseeing your monthly bills, cross-referencing statements to make sure the direct deposits and monthly withdrawals look exactly as you thought they would.
It Doesn’t Work as Well With Variable Bills
You may have bills that come in once a year—potentially homeowners association dues, an alarm system fee, or a life/auto insurance policy. If you have bills that you pay less frequently than a monthly basis, I don’t recommend inserting these into the auto pay process. Rates could change or the bill may be inaccurate and require your review before payment. It doesn’t mean that you can’t pay the bill online—just don’t set it up for the auto pay system.
The Verdict
Automatic bill payment is another one of those advances in technology that can make our lives easier. However, it doesn’t remove or absolve you from your role as CEO of your personal finances. As one of my first leaders taught me, you still need to inspect what you expect. If you don’t want surprises, read all of your bills and only put recurring bills that have very little month to month volatility on auto pay.
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