You've heard it a million times, automate your finances. It's a great way to save without thinking about it, it's a great way to pay your bills. You set it and forget it. Your financial life is under control, right? Well, not necessarily.
Few would debate the fact that automating your finances is a good thing. But as much as conventional wisdom says to automate your finances, it's not as simple as that.
There is nothing good about paying bills late. Not only will you likely be assessed a late fee, possibly a punitive one if it's your second late payment in six months, but your credit report is dinged resulting in a lower credit score, and your interest rate might go up, says Gail Cunningham, a spokesperson for the National Foundation for Credit Counseling. "For people who are unorganized, travel or procrastinate, automatic bill paying is essential."
But for all the good automating your payments does, there are downsides. "The money will be pulled out of your account, and if funds are low, it could result in an overdraft," says Cunningham. You could get dinged with overdraft fees that can be $30-$40.
Know too, that once you automate, "While it's not difficult, it does involve a bit of work, to stop the pull. This is one of the reasons like you to set up auto bill pay, as it serves as a deterrent to moving your account to a different institution," says Cunningham.
There are some horror stories. For example, people have had money continued to be pulled from their accounts even after they stopped receiving the service they had set up the payment for.
"People have also been known to keep paying for something they don't really want or need, like a gym membership, just to avoid having to stop the pull. Not smart, but nonetheless how some people think," says Cunningham.
As always, make sure the website in which you are setting automatic payments with is secure and can be trusted, says Leslie Tayne, an attorney specializing in debt issues with the Tayne Law Group.
Be mindful of your money
With things being "automatic" you can lose track of where and how much money is going out of your primary account each month. You can ill afford not to have your fingers on the pulse of your finances. One way to get around this is to "opt-in" for payment notification. This will keep you abreast of what's being paid when.
Work around challenges
It's easy enough to set up payments that are the same every month like your car loan, and more of a challenge to do so for bills that vary like utility bills. But that's not to say it can't be done. Take for example your credit cards. "Most people charge a similar amount each month on their credit card. Go back through six months of statements to review the minimum monthly payment. Now double that amount and set that up as your automatic payment each month," says Cunningham.
Keep your eyes on your portfolio
Just like you don't want to stop paying attention to your bank account balances and bills, you want to be mindful when you automate your investments. "Automating your investments is a great time saver, but you don't want to stop paying attention to your portfolio," says Kalen Holiday, a spokesperson for Covestor, an online asset management company.