May 152013

By W. Abdelgawad for

Everyone seems to want you to put your money on autopilot. Employers and banks encourage you to set up direct deposit of your paycheck. The gym, the phone company and subscription web services all encourage you to set up automatic billing. Online bill pay services let you turn on automatic bill pay, so that your bills get paid instantly from your checking account or by credit card as soon as they come in.

Even many finance experts recommend automating your financial processes. Doing so, they say, can help you stick to your budget, and prevent you from paying late on important bills.

Direct deposit

Automating your finances is not a good idea.

I’m going to have to be a contrarian on this one. Setting your finances on autopilot can have unintended and dangerous consequences:

1. You might miss extra or accidental charges on bills. Maybe your phone bill has suddenly jumped for no good reason. Maybe your bank has signed you up for some extra paid service you didn’t want. The sad reality is that most companies are looking for ways to take more of your money. They’re not looking for ways to give you money, that’s for sure.

If you receive paper bills and take a moment to look them over, you will almost certainly catch any inappropriate charges. Even if you pay your bills online, those few minutes that it takes you to log on and review the bill will probably be enough to spot anything that doesn’t belong.

Check out the story of Chris Bovis of the UK, who was hit with a £19,000 phone bill because of a glitch in his iPhone that caused it to send and receive internet data in error. The phone company tried to take the money out of Chris’ bank account but the bank blocked the transfer. If Chris had signed up for automatic billing who knows what might have happened. The phone company might have been allowed to take the money, resulting in overdraft charges returned checks.

2. Encourages overspending. Just having a credit card is known to encourage people to spend more than they can afford, since everything happens “out of sight”, so to speak. So how about when the credit card bill gets paid automatically and you don’t even have to review it?

You could very easily get careless with your spending and end up in serious debt.

3. Greater chance of overdrawing your checking account. If you’ve got different services auto-billing your checking account and you’re not keeping an eye on it, there’s a good chance you could become overdrawn. Maybe someone doesn’t cash a check you wrote right away, and you don’t notice it. Maybe a service bills you quarterly instead of monthly and you get hit with a bigger bill that you expected.

Build Good Financial Habits Instead

Instead of setting your finances on autopilot, develop good money management skills. Don’t get me wrong, there’s nothing with direct deposit – I use it myself – or with online bill pay. But scrutinize your bills before you pay them. Review your credit card statements,  and bank and brokerage statements. Use a debit card rather than credit card (or pay cash, or write checks). Every month compare your income against your spending.

These habits will serve you well over the long run, in your personal life and in business as well.

Oct 302008

Ten Cures for the Recession Blues, Part I

A recent article in the online Irish newspaper is titled, “Ten Cures for the Recession Blues.” The author, Louise McBride, has some good common-sense suggestions, and there is a tie-in to online bill payments in part two. I have summarized the points here (and I modified some of her suggestions to be more appropriate to an American or international readership):

  1. Cancel your home phone service. This is best for people who don’t use the phone too much during the day. Most home landline accounts have set minimum fees even if you hardly ever use the phone. Go mobile. Mobile phone plans generally give you unlimited night and weekend minutes, and a set number of peak minutes. Limit your peak usage, and make your social calls during unlimited periods.
  2. Alternatively, use a pre-paid cell phone. Again, best for people who don’t have heavy phone usage. For light phone users, you could save quite a bit of money.
  3. Kiss goodbye to takeaway coffees and bagels at lunch. Pack your lunch and bring coffee in a thermos.
  4. Buy a condo or apartment at auction or at a discount. If you’re renting, this is a good time to take a look at the property market. Many developers are putting condos and apartments up for auction in order to move them, or reducing the price substantially. They may also be open to negotiation. With the recent reductions in the U.S. prime lending rate, interest rates are very low now as well. It’s not as easy to quality for a loan as it used to be, but if you can qualify there are deals to be had.
  5. Get the builders in. Have you been wanting to do a home renovation or expansion? Construction work has dried up and tradespeople such as builders and plumbers may be willing to negotiate their rates.

Stay tuned for part two this weekend.

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