Work. Errands. Relationships. Kids. Sometimes there’s simply too much going on to keep it all straight. The time demands of life in modern society can make it easy to feel like life is living you these days, rather than the other way around.

When was the last time you talked to someone who mentioned their excessive amount of leisure time, or how well they were able to remember all of their to-do’s? If your social circles are anything like mine, these interactions are few and far between.

With this in mind, who wouldn’t jump at the chance for some additional free time or a few less things to remember? Automatic bill pay offers you the opportunity to simplify your life and obtain both in the process.

Automatic Bill Pay Defined

Previously in the Master Your Money series, we’ve covered the benefits of online bill pay, as well as the advantages of paperless billing. So what exactly is automatic bill pay, and how does it differ from these two? In the words of The Princess Bride’s Inigo Montoya:

“Let me explain – no, there is too much. Let me sum up.”

Online bill pay is the process of manually paying a given bill online, typically through a service provider’s website. You may still receive a paper bill, and you’ll need to remember to log in online and pay it manually. Doing so can reduce your bill pay stress, save you some serious cash, and preserve the planet as well.

Paperless billing consists of the other half of the bill pay equation – how you receive your bill, rather than how you pay it. Enrolling in paperless billing means you agree to receive your bills electronically, typically via email. This gives you early access to your bills and can qualify you for provider discounts, with the added bonus of reducing your environmental footprint.

Automatic bill pay consists of scheduling recurring payments for a given bill. Usually this is done by initiating a recurring Electronic Funds Transfer (EFT) or debit / credit card payment via your service provider’s website. Automatic bill pay eliminates the need for you to remember to pay a given bill each and every month. This reduces your chances of missing a payment, incurring a late fee, and endangering your credit score.

Capture The Benefits Of Automatic Bill Pay

Now that we’ve established what automatic bill pay is, let’s take a look at how it can help you simplify and otherwise improve your life. There are five primary benefits of automatic bill pay, which I’ve outlined in detail below.

Prevent Missed Payments

The 2016 Household Diary Study conducted by the USPS found that the average American household receives 14.1 bills per month (page 39). That works out to 169.2 bills per year. Over the average adult American life expectancy of 61 years (18-79), that totals 10,321 bills.

No matter how organized or dedicated, odds are you’ll forget to make a payment sooner or later. It’s easy to bat 1,000% in a single appearance at the plate. But batting 1,000% in 10,321 consecutive appearances? Not likely.

According to the 2017 Consumer Financial Literacy Survey, 22% of households do not pay their bills on time. Experian found that the average American paid 4.56 bills late in 2017 related solely to loan repayments – that number doesn’t even include utilities.

Life happens. People start new jobs, move to new neighborhoods, and experience the death of loved ones. When you’re experiencing a stressful life change, the last thing you want to worry about is missing a bill payment. During these times, automatic bill pay can be worth its weight in gold.

Banish Bill Pay Stress

Miss just one bill payment, and you’ll be facing some serious consequences that can cost you thousands in the form of late fees, increased credit card interest rates, and a credit score drop of up to 90-110 points. How’s that for stress?

You don’t get a reprieve from remembering to pay your bills just because you’re working overtime, your kids are sick, and there’s a gazillion things on your to-do list. Automatic bill pay can lighten the load on your shoulders when the going gets tough by ensuring your bills get paid.

Free Up Your Time

How long does it take you to pay all of your monthly bills? A baseline estimate of just 5 minutes each puts this total at 70.5 minutes using the 14 bills-per-month average. I don’t know about you, but I can list roughly 941,327 ways I’d rather use my time. Parenting, relationships, exercise, home improvement, hobbies, self-care, the list goes on.

I recently came across an eye-opening stat for my fellow hostages parents of young children. Reading aloud to your kids as little as 5 minutes per day sets them up for incredible successes later in life. It increases their vocabulary, literacy, and test scores, while instilling a life-long love of reading.

The benefits of reading aloud to your kids are so great that doing so has been described as a “super multivitamin” or a “success vaccine”. Automating your bill payments and reclaiming that estimated 70.5 minutes / month spent licking stamps or logging in to service provider websites frees up 47% of the time you need to give your kids a major leg up on life.

Reduce Your Mental Workload

Ever woken up in a cold sweat in the middle of the night, afraid you’d forgotten to pay a bill? Research shows our working memory can only successfully retain about four things at once. And multitasking only serves to further reduce our ability to remember things.

Life in modern society keeps most of us hopping between work, errands, and other commitments. Unless you’re a participant in the World Memory Championships or a freak who can recite 67,980 digits of the value of pi from memory, you’ll benefit from freeing up your mental capacity with automatic bill pay.

Save Mo’ Money

Automatic bill pay benefits service providers in addition to consumers. If a customer enrolls in automatic payments, the provider has a guarantee of sorts that they’ll be paid. Because of this, some service providers offer financial incentives to enroll in automatic bill pay.

Our auto insurance provider is one such example, though we aren’t able to claim the discount since we claim a slightly larger pay-in-full discount.

Evaluate The Potential Risks Of Automatic Bill Pay

Not all that glitters is gold, as the old adage goes. Before you set sail with automatic bill pay, you should be aware of some potential risks. While each of these potential pitfalls are avoidable, they’re worth mentioning now in the interest of avoiding painful missteps.

Account Overdrafts

The main risk of automatic bill pay consists of not having the necessary funds to cover a given bill when it is paid. When you pay a bill manually, you probably first check your account to be certain you have the cash on hand to cover the payment.

While automatic payments confer many benefits, one drawback is the lack of this check-and-balance. If you live paycheck-to-paycheck and haven’t properly choreographed your cash flow, you run the risk of overdrawing your account.

Debit / Credit Card Expiration Dates

You can typically fund automatic bill payments with either your checking account or a debit / credit card. Opting for your favorite debit / credit card may seem like the better option if you’re trying to accumulate cash back or rewards points, but doing so can cause issues.

When the expiration date on your card expires, any automatic payments you still have scheduled for it will fail. These missed payments can have serious financial repercussions, as mentioned earlier. Many service providers now send reminders when payment methods you have on file are close to expiring, but you shouldn’t count on this.

Switching Banks

This is the alternative risk to using your debit / credit card to make automatic payments. If you fund automatic payments via your checking account instead, moving your account to a different bank can cause failed payments. If you don’t remember to update all of your scheduled payments, you’ll be deemed delinquent. Ruh-roh.

While I felt this worth mentioning, it’s probably less likely to occur than a failed card payment due to an obsolete expiration date. From my perspective, funding automatic payments with a checking account involves less overhead than relying on a debit / credit card.

Lack Of Incentive To Review Bills

Automatic bill pay can reduce your motivation to review your bills prior to paying them. It’s easy to fall into the trap of thinking it’s no longer necessary to review a bill if payment is automatically scheduled. But not doing so can cause you to miss identifying potential billing errors, and overpay as a result.

You may miss enlightening information contained within utility bills, in particular. Utility bills based on estimated rather than actual consumption can be off significantly. If you receive a sky-high utility bill out of the blue, your bill could shed some light on why.

Higher-than-normal utility bills can also indicate performance issues with appliances or home energy performance. This happened to us not long ago. A higher-than-normal electric bill led me to do some troubleshooting until I identified the real culprit – 50 pounds of mineral build-up in our hot water heater which had encased the lower heating element, causing it to fail.

Thankfully, I was able to remedy the situation with a $15 replacement part after just one month of higher-than-normal electricity use. But we could have easily paid 10x that in inflated electricity consumption costs had I not been reviewing our bill. If you’re no longer doing so, you can miss the early warning signs of an appliance on the verge of failing.

Reduced Pain Of Payment

Paying yourself first by funding your savings goals before discretionary spending is a powerful way to save. The secret to its effectiveness is that many people get used to living on what’s left, and never even miss the amount they’re saving.

This psychological phenomenon also works in reverse. Studies have shown that paying for things with cash is more psychologically “painful” than writing a check or swiping a credit card. This “pain of payment” is what makes paying with cash an effective means of combating overspending.

Avoiding the need to manually write a check or click “Pay Now” on a service provider’s website may reduce the financial pain of your bill payments. Pending your personality, this can result in complacency and reduced motivation to minimize your expenses.

The 3 Risk/Reward Levels Of Automatic Bill Pay

Now that I’ve tempered your enthusiasm with the potential risk factors of automatic bill pay, you may be wondering if it’s such a good idea after all. The good news is that each of the potential risks outlined above are preventable with the right approach. You can also customize your adaptation to one of three distinct levels, each possessing their own risk/reward ratio.

Basic – Fixed Monthly Bills Only

The most basic implementation of automatic bill pay is to use it for only your monthly bills with balances which do not fluctuate. Fixed loan payments are a good example of this, as are bills for things like your internet service or cell phone.

Scheduling automatic payments for only these bill types means you’ll still need to manually pay monthly bills for things like utilities which fluctuate from month-to-month. You’ll need to do the same for your non-monthly bills for things like property taxes and auto/home/life insurance.

The advantage of this approach lies in the fact that you’re minimizing the risk of overdrawing your checking account by not scheduling automatic payments for bills with balances which change month-to-month or which require a transfer from a dedicated savings account to pay for.

The disadvantage here is that you’re only taking a small number of bills off of your monthly to-do list. This still leaves you with the majority of your bill pay stress, time commitments, and mental burden. It also leaves you open to forgetting to pay a given bill and the late fees, higher interest rates, and the damaged credit score that come with doing so.

This is the safest method of automatic bill pay, but also the least rewarding. I recommend starting here if you’re unfamiliar with the process to become comfortable and confident in it prior to moving on.

Intermediate – All Monthly Bills

A more advanced method is to implement automatic bill pay for all of your monthly bills, even those with fluctuating balances. This leaves just your irregular, non-monthly bills which you’ll need to pay manually.

This more advanced use of automatic bill pay relieves the bulk of your financial overhead related to bills each month. No more need to make the time to pay or even remember to pay a monthly bill – you’re leveraging technology to do the grunt work for you.

The potential disadvantage to this approach is the risk of an automatic payment for an unexpectedly large bill draining your account and endangering your monthly cash flow choreography. For example, say your electric bill shows up sky-high one month, like ours did.

You can prevent unwelcome surprises by making a habit of reviewing each bill as it arrives to identify any outliers. And you can eliminate the potential for overdrafts by maintaining a buffer of one month’s worth of expenses in your checking account. But in the absence of either of these two things, automatic payments can pose an overdraft risk.

This use of automatic bill pay is a good example of the Pareto Rule – 80% of the benefit with just 20% of the potential risk. We personally use this approach ourselves, as I prefer to pay our larger, non-monthly bills manually. This lets me ensure we have the necessary funds to pay them in our related dedicated savings accounts.

Advanced – All Monthly & Non-Monthly Bills

The most advanced form of automatic bill pay is implementing it for all bill types, including irregular, non-monthly bills. Doing so means your bill pay system is fully automated and you’ve successfully put your budget on cruise control.

No need to set aside time each week or month to pay your bills. No more worrying about forgetting to pay a given bill. Your bills will take care of themselves, even if your attention is otherwise spoken for. You can rest easy knowing you’re covered no matter whether you’re away on vacation, swamped at work, or dealing with a significant life change.

This approach carries with it the same potential risk as automating just your regular monthly bills. But in addition, you run the risk of forgetting or mistiming the required transfer from your dedicated savings accounts to your checking account for the non-monthly bills you’ve established sinking funds for.

There’s nothing preventing you from automating these transfers and simply reviewing them before they take place. But forgetting to perform this review can result in a relatively large expenditure which you may be unprepared for.

The 8 Planks Of A Leak-Proof Bill Pay System

Bills are a major source of stress for many people. Creating a low-stress, easy-to-manage, convenient, and sustainable bill pay system plays a large role in mastering your money.

Regardless of the extent to which you implement automatic bill pay, the below tactics will help you design and maintain a simple, convenient, and leak-proof bill pay system:

1. Never forget to pay a bill again by implementing your very own bill pay safety net.

2. De-stress, save money, and preserve the planet by signing up for online bill pay where offered. Doing so is often a prerequisite to scheduling automatic payments.

3. Take the guesswork out of when you can afford to pay each of your bills every month by designing your budget’s cash flow choreography.

4. Eliminate all possibility of bill pay overdrafts by using the secret budget sauce to build a buffer of one month’s worth of expenses in your checking account.

5. Obtain early access to your bills, reduce your environmental footprint, and save money by enrolling in paperless billing where available.

6. Free up your time and reduce your mental workload by scheduling automatic bill payments using the risk-reward level that suits you best.

   1. Consider selecting your checking account as a funding source rather than your debit or credit card. This will avoid the potential for missed payments caused by card expiration dates. Make a mental note of the need to update your payment information if you ever change banks.

   2. Continue to review bills for which you’ve scheduled automatic payments. This will help prevent low “pain of payment” and will provide an opportunity to identify billing discrepancies, changing interest rates, or unusual utility consumption.

Simplify Your Bills & Your Life

Automatic bill pay can increase your free time, reduce your bill pay stress, and lighten your mental workload. When implemented properly, it can simplify your bills and your life.

Use your new-found time savings to spend an hour or two more per month reading to your kids, exercising, or otherwise improving your life and those of others.

Stacking automatic bill pay on top of all the other strategies covered earlier in this series should have your finances headed for some smooth sailing. So kick back and relax – your new money management system is just about complete!

Next Steps

For those of you who have been following the Master Your Money series from the beginning, below are the next steps on your journey to financial freedom:

1. Decide which risk-reward level of automatic bill pay best suits your comfort level.

2. Reference Mint Bills to identify all of your bills belonging to the risk-reward level you’ve selected. Make a list of these, including their amount and due date.

3. Consult the cash flow choreography worksheet to determine when you can afford to pay each bill on your list.

4. Use your online bill pay credentials to schedule recurring automatic bill payments for each bill on your list.

   1. Use the payment dates you identified using the cash flow choreography spreadsheet.

   2. Consider using EFT transfers from your checking account as a funding source rather than debit or credit cards. This will avoid card expiration date issues in future.

   3. Make a mental note of the need to update your payment information if you ever change banks.

5. Continue to review the bills you pay automatically to identify billing errors, changing interest rates, or unusual utility consumption.

6. Make a habit of updating the amount of the affected budget category in Mint Budgets with the monthly balance due for each of your offline bill types which fluctuate.