3 Times It’s Better To Automate Payments From Your Bank Accounts
A typical household in 2023 might make dozens of monthly payments to provide for the necessities of life and the trappings of modern society. What was once a single cable bill is now a half-dozen streaming subscriptions. One household phone bill has sprawled out into a data plan for every member.
The surest way to keep track of it all — and to keep current and avoid the consequences of missed payments — is to automate whichever payments you can. The trick is knowing which ones to put on autopilot and which to pay the old-fashioned way. Keep reading to learn about the payments that are best made on a set-it-and-forget-it basis.
Savings and Investments
The most important payments to automate are the ones you make to yourself. By putting your savings on autopilot, you separate your emergency fund contributions from your spending money before you ever get a chance to touch them. This takes the guesswork out of saving and builds your bank without you having to remember to tuck some portion of your check away each pay period.
Automated transfers can do the same thing for your nest egg by setting you up for success with dollar-cost averaging. That’s the strategy of making steady, consistent contributions to an investment portfolio without regard to the market’s behavior or direction.
For example, say you contribute $50 on the same date twice per month to an index fund ETF in a brokerage account that supports dollar-cost averaging. Over time, you’ll buy more shares when they’re cheap and fewer when they’re expensive without ever having to adjust your contributions.
Whether you rent or own a home, housing is likely your costliest monthly bill — and probably the first one you should automate. Your bundled monthly payment might include your mortgage, property taxes, home insurance and escrow installments. None of these are payments you can afford to miss even once considering the risks, which include damaged credit, lapsed insurance coverage, tax trouble and insufficient escrow funds.
One exception might be people who like to make extra payments to their mortgage principal each month in an effort to pay off their loans early. In that case, manual monthly payments might make more sense.
Fixed Recurring Bills
The bills that you pay every month fall into two categories: variable recurring payments, which change from month to month, and fixed recurring payments, which are the same every time.
Some experts warn against automating bills that change from one month to the next because it’s easy to lose track of what you’re spending if you do. For example, paying your utility bills manually will keep you attuned to your home’s changing heating and cooling costs. Doing the same with your credit card bills gives you an opportunity to take inventory of your purchases and scour each month’s statements for mistakes or opportunities to save money.
On the other hand, automating fixed recurring bills can be a convenient way to save time and eliminate the risk of missed payments and the fees that go with them. Consider automating your predictable recurring bills like:
- Health insurance
- Car payments and insurance
- Student loan payments
- Cell phone
Remember: Avoid Complacency With Recurring Wants
Health insurance and car payments are bills you need to pay, but many of the typical household’s fixed recurring payments go to wants. Things like streaming services, paid apps, gym memberships and media subscriptions are fairly cheap a la carte, but they can add up to take a big bite out of your monthly budget.
They’re also easy to lose track of because they’re almost always billed on autopay. The ones you forgot about or picked up when you unwittingly let a free trial lapse without canceling can quietly get lost in the shuffle.
Automating payments for these kinds of wants is convenient, but don’t get complacent. Comb your statements a few times a year to make sure none slipped through the cracks. Apps like Rocket Money (formerly Truebill) can help you track and eliminate unwanted subscriptions, as can free budgeting tools like Mint.
When you isolate the small recurring payments that you do want to keep automating, consider putting them on old, unused credit cards to keep the bank from closing those accounts and canceling the open credit they provide.
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