Sure, you know your bills can be automated, but maybe you’re not sureifthey should be. Or you have some bills automated but not all, or they’re all done in different ways—a few go through PayPal, some through your debit card, and the rest on a credit card—and there’s no rhyme or reason to the process.
Whatever your automation level, you know one thing is for sure: It’s time need to tackle this once and for all.
“The good thing is you know you’re going to pay your bills on time,” says Erin Lowry, author ofBroke Millennial: Stop Scraping By and Get Your Financial Life Together. “But if you are living paycheck to paycheck, automating your bills could cause you to overdraw your account and, depending on your bank, force you into an overdraft fee.”
That’s the last thing you want, but automating can allow you to go on autopilot, which can be a good and bad thing. Besides the potential to overdraft, you could miss incorrect charges—or not notice them until after the bill has been paid. “I actually had a situation one time I was charged $1,300 for my electric bill, something that’s typically between $50 and $110 depending on the time of year,” says Lowry. “If that bill had automatically come out of my checking account, that would have caused problems for me.”
“Issues … can be avoided by giving each bill a quick glance, and if anything, automating can often save you money.”
But such issues are rare and can be avoided by giving each bill a quick glance, and if anything, automating can often save you money. Some companies—especiallystudent loan lendersandphone service providers—may give you a small discount when you enroll in autopay, and others will do it when you opt into paperless billing (something that goes hand-in-hand with automating bills). This will allow you to get emails and text alerts on your bill, which means staying on top of them can be more reactive task proactive.
Ultimately, autopay is the first step to automating your financial life. It sets the groundwork for automating your savings, which is a game-changer for longer-term financial goals. “Most people think of saving as an abstract, like ‘OK, whatever’s left over at the end of the month, I’ll save,” Priya Malani, partner at Stash Wealth. “But if you haven’t automated it, guess what? There’s going to be nothing left over to save at the end of the month.”
“…then a couple months go by, and they’re like ‘Holy shit! I have $500 in my Digit account.’”
Even if you haven’t mastered bill automation just yet, you can test out savings automation with the app Digit. It has an algorithm that studies your cash flow and then automatically moves small sums of money out of your checking and into your savings. “Digit is actually one of our favorite apps for people who are like, ‘Hell no. There is no money for me to save. I’m living paycheck to paycheck; it is just not happening,’” says Malani. “But then a couple months go by, and they’re like ‘Holy shit! I have $500 in my Digit account.’”
First things first though: Get your bills automated. With some careful planning and a few smart strategies, you can avoid the downsides and reap the rewards. Here’s everything you need to consider.
“Before you automate your financial life, you need to know exactly what all of your bills are from month to month and if you can afford to automate them,” says Lowry. To do this, add up all your monthly bills—average those that vary from month to month, paying close attention to any that fluctuate more than a few dollars—and determine the total amount you need each month.
Then add at least a $100 cushion to that amount, more if you can afford it or will need it due varying bill amounts. While having a small cushion doesn’t mean you can’t automate your bills, it does mean you can’t go on autopilot yourself. Remain hands on, especially at first, and check your balance regularly.
If you’re confident you can charge bills to a credit card and pay it off in full every month, you should absolutely do this. Not only does it drastically reduce the number of due dates you need to juggle, but it also is an opportunity to earn reward points or cash back.
While not every bill can be charged to a credit card (rent and utilities are rare), plenty can be—think Netflix subscriptions, exercise classes, and phone bills.
While a separate checking account is not essential for automating bills, it can be incredibly helpful, as it separates spending money from bill-pay money. It’s something that’s a particularly good idea if you’re not putting everyday expenses on a credit card or have any concerns about spending money that should be designated for bills.
Ellie Thompson, CEO of Money Therapy, says many banks have accounts just for this type of use. “There are hassle-free accounts that allow you to empty it out every month and start over again the next month. This allows you to plan for your bills instead of receiving an alert that you may not have enough money to pay it off.”
Once you’ve decided what accounts you’ll use to pay bills, make a list of all your due dates and then see if those dates work with your cash flow. For example, if you’re paid bimonthly and rent is due on the first of the month, you may want to pay the bulk of your bills after your mid-month paycheck on the 15th. Then try to get all dates moved to just after the 15th, or at the very least, move to the second half of the month.
This task can admittedly be a bit of a chore, as you’ll have to contact each company individually. Many places will allow you to change due dates online; however, others will require you to call, which we know is not the most fun task. The goods news is most will accomodate the request.
If you do decide to pay the bulk of your bills after a specific paycheck, Lowry recommends scheduling payments a few days after your pay date. “I would give yourself maybe two business days after getting paid. That way you can be sure everything actually cleared in your account because you don’t want money that hasn’t been deposited yet being pulled out”
This one’s essential, and there are two common ways to do it. The first is to set up recurring payments through a company’s site by logging into your account and entering your credit or debit card number. The second is to do it on your bank’s site. This can take a little more time and organization upfront, but it has the advantage of storing everything in one place, which gives you a bird’s-eye view of all your bills and when they’re scheduled to be paid.
When your accounts are linked and your due dates align with your cash flow, it’s time to schedule payments. Make sure everything is scheduled as a recurring payment, not a one-time payment, and double-check all your due dates. Once everything is scheduled and confirmed, your bills are automated. Yay!
Now, you can sit back and watch—or even better, not watch—your bills be paid.