Wednesday, December 5, 2012

Rule #23 Automate all Monthly Payments

I have no idea when our bills are due.  I know they are due sometime during the month, usually near the end of it, but I dont fuss with checking the exact due dates anymore.   We have automated all but one of our bills.  When I say automated, I mean that we have set up an automatic payment either through the company itself or through our main bank to ensure the bills are paid on time.  We dont need to go stand in the long lines at bank tellers or ATMs to pay our monthly bills anymore because they come directly out of our accounts on the same day each month.  This way, we never have to worry about missing payments.  The payments are approximately the same every month, and the payment always comes from our checquing account, so we just make sure there is always enough in our account to cover the payment.  I find with money and bill management,  the path of least resistance with the highest amount of certainty usually makes the most sense, so making things automatic is the way to go for us.  No muss, no fuss.  This means we can focus our energy on other aspects of our financial planning instead of spending a couple hours a month in line-ups.

We do this with bill payments, debt payments (when we have any), rent, mortgage payments etc.  We have also applied this automating to investment contributions.  This is essentially the same concept of paying yourself first, automatically.  Each month, a set amount comes out of our account to go into our investments, and/or our savings accounts.  We have coordinated the timing of these particular withdrawals to coincide with our paydays.  The day that our paycheques go in our accounts, is the day the money comes out to make the contribution.  One thing about automating all our bills, debt payments, mortgage payments, and now investment contributions, is that when we look at our bank account balances, we know that most of the money in there is ours... it is essentially our discretionary funds... because all of our non-discretionaries (minus food) is, for the most part, already paid for.  We have learned to live without that contribution money in the first place so it never feels like the money is being taken out of our pockets.

By applying the Automatic Payment method to investments, we never have to choose how much we are going to save or invest that month, because we have already arranged for it to come out automatically.  The automating of the process of investing contributions essentially makes it a compulsory contribution.  It makes it habitual.  Inertia is huge in making a contribution, and anything that will increase the probability that you will continue investing in your financial security is a good thing in my book.

The benefits of automating one's payments are a plenty.  We never pay late fees because we are never late with payments.  If we go away for a week, we don't have to pre-pay any bills or dig through our mail when we come back to see which ones need to be paid right away.  Since our investment contributions are automatic, we know our future is being funded and don't have to carve off part of our paycheque because its already done.  Our credit rating is never in jeopardy because we didn't get a bill in the mail, made the wrong payment amount, or because it somehow got misplaced among the junk mail and went unpaid.  Lots of good reasons.

A the the end of the month, right about when I do our charting, I also leaf through the bills and see if there are any irregularities that may need addressing, but thats the only time of the month that I look through the bills.

There is one exception to this rule around automating, and that is with our credit cards.  Our credit cards may have additional items/services purchased on them from time to time and so an automatic payment doesnt suit us well in this case.  I check the balance every couple of days and pay it off completely.  I dont even wait for a bill to come in.... We treat our credits cards at 1-2 day loans, paying them off right away.  you can read more about how we use our credit cards here.

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