Q - Should I set up automatic payments for all my bills?

A. - Ten years ago, if you had asked me whether to put all your bills on autopay, I would have said “no.” But the deployment of bank and provider bill-pay software, including notifications and access to paperless statements, has improved significantly. Today, the answer is a qualified “yes.”

Your phone, internet, gas, electric, and water utility bills should be set up for automatic payment directly with the utility. You may also have flexibility in choosing the day of the month for payment, so choose one that works for you. It’s a personal preference whether to select level billing to smooth out summer or winter utility bill spikes, but it can be helpful for some. If your utility doesn’t offer automated payments, use your bank’s bill pay feature instead. This advice applies not only to utilities but also to all loans and other monthly services or subscriptions. You’ll save $0.78 in postage on each bill you don’t mail, and you'll save time handling individual payments. Plus, you can opt in to paperless billing to lighten your mailbox. Note: the reason for choosing the bill payment directly with the utility or service provider if available is that (a) late changes in the amount due will adjust the payment, and (b) less risk of being charged a late fee, as they control when the payment actually occurs.

Next are insurance bills. While you should pay electronically to save a stamp, I recommend not opting into monthly payment plans because of the added cost. This applies to any annual or semi-annual policy that offers monthly billing, which can add $2 to $5 to the bill each month. Across several policies, the extra fees add up. Of course, health or dental insurance, which has rates set annually, is billed and paid monthly, and those can and should be automated.

For credit cards, turn on automated payment of the statement balance if possible. Yes, you’ll need enough in your bank account each month to pay the full balance, but since you should be paying off every card each month anyway, putting them on autopay helps form the habit of paying off each balance monthly. If you get a notification of a higher payment than you expected, you’ll have a few days to transfer some money to cover it. Autopay minimizes the chance of missing the payment date and incurring high fees and interest, and it generally gives flexibility on the day of the month to pay (several days before the due date). If you haven’t paid off the full balance, you should still schedule an autopay for the minimum payment or the amount you’ve planned for. In months when you have extra money, you can make an additional manual payment to help pay down the balance while still ensuring the minimum is always paid on time.

Finally, there are other regular expenses that may or may not make sense to automate. You could automate charitable donations to spread them evenly across the year. If that’s your plan, then do it. But taxes, such as a semi-annual Personal Property Tax, cannot be automated, so you can use your bank’s bill pay option. As described above, I’ve automated and now only have a handful of bills I pay manually each year. I receive bill notifications from credit cards and utilities that tell me what they plan to deduct from my checking account, giving me time to investigate if the amount doesn’t seem right.

To prevent automated payments from overdrawing your account, do two things. (1) Monitor upcoming payment notifications to stay aware of what gets paid and when, relative to your payday and other bills. Just in case, keep about a month’s worth of expenses in a bank money market fund to quickly transfer to checking if needed. (2) Ensure a savings account is linked to your checking account for overdraft protection. Request this from the bank.

Finally, just because you automate payments for a service doesn’t relieve you of the responsibility to evaluate the cost-benefit of continuing to pay for it. Today, with most utilities and services supporting online payments and account management, it’s worth the effort to create online accounts and set up the automation. You’ll spend less time and money in the process, reducing the risk of errors or penalties for missed payments.

Read more about paying bills in What Would Dad Do? - Volume 1: Essential Money Management