Online Bill Pay: 5 Bills to Put on Autopilot
This article is part of a package on automated bill payments. Read our other article: 5 Expenses You Should Never Automate.
Automatic payment plans can reduce paperwork hassles and streamline your financial life, but you’ll need to be selective about which expenses you put on autopilot and which you don’t. Some types of bills benefit from more hands-on management, while the “set it and forget it” approach typically works best for both savings goals and regular, unchanging expenses.
“Automation is one of the most important things you can do with your money,” says Ramit Sethi, author of the book and the blog I Will Teach You to Be Rich. “Instead of just ‘trying harder’ to meet savings goals or pay off bills, it’s far more effective to focus on building systems that make you do the right thing by default.”
One note before you get started: Setting up an autopay plan can be an inconvenience initially, so to reduce the hassle, make a list of the expenses you want to automate, then gather up all the necessary account numbers, banking information, and credit card details so you can finish the initial steps in a single sitting. And because many autopay accounts may take a few weeks to get activated, set up calendar reminders to make sure all of your initial payments go through. Once you’ve made it past those hurdles, you’ll be set for months — if not years — to come.
Here are five things worth automating to reap real benefits and avoid costly errors.
Mortgage
Your monthly mortgage payment is one regular expense always worth automating, since it’s predictable and not going away any time soon, says Liz Weston, author of The 10 Commandments of Money. “Miss a payment and you can knock 110 points off your credit score, which is an outsize penalty to pay for one small lapse in attention,” she says. And a low credit score can demolish your chances of refinancing if you plan to take advantage of low interest rates.
Holiday Gifts
For the past several years, consumers have budgeted about $700 a year for holiday shopping. “Even though we know certain events will be coming in the future, we don’t save for them because it would seem ‘weird,’” says Sethi. “What would be really smart is to set up a sub-savings account and automate a little bit of money each month.”
The logistics are simple: In an ING Direct online account, for example, you can set up a sub-savings account in just a few minutes, then send an automatic payment to the account of just $60 a month. By the time the holidays arrive, you’ll have banked enough cash to get you through the season without wrecking your budget.
Retirement Contributions
The No. 1 factor that determines the size of your retirement nest egg isn’t your stock-picking prowess — it’s steady contributions. Regular contributions to a tax-deductible retirement account allow you to take advantage of dollar-cost averaging and rack up sizeable deductions from Uncle Sam.
In addition to your regular 401(k) contributions, you can bulk up savings by automating monthly payments to a Roth — $416 monthly to reach the $5,000 annual maximum, or $500 monthly to reach the $6,000 max if you're 50 or older.
Major Purchases
Eventually, you’re going want to buy a new car, go on a nice vacation, or put a down payment on a house. Instead of dipping into emergency savings or taking out a sizeable loan, automate savings today for purchases you know you’ll eventually have to make. “When you automate savings, it mentally comes out of your budget. You stop thinking about ‘can I save?’ and you just do save,” says Kathy Kristof, MoneyWatch columnist and author of Investing 101.
College Savings
College costs have been far outpacing inflation, which is why it’s critical to start saving now so your kids don’t end up saddled with six-figure debts. “If you have to make a transfer every paycheck, you’re going to find other things to do with that money,” says Weston. “Set up an automatic deposit, don’t touch it, and let it grow.”
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