Whether you’re on vacation, constantly working, or just busy with life, it is so easy to miss a payment. It may not be a big deal at first, but after the fifth or sixth late fee, you may get fed up. Automatic payments can help manage your finances and avoid all late fees by paying your bills on time. Similarly, automatic savings can help manage your funds for the future. If you find yourself struggling to save, setting up automatic savings will make saving as effortless as possible because the money is distributed automatically for you. While assuring money for the future and on time payments, automatic savings and payments can be a helpful tool when working toward a better financial future.
Automatic Payments
If your credit score is weak and you often find yourself being rejected for loans, it may be time to set up automatic payments. Automatic payments are ideal and easy to implement. They can be very beneficial for your financial needs, credit score and credit history.
With so many expenses and deadlines, it can be challenging to pay each one, on time. One way to help with this problem is to implement automatic payments. When using automatic transfer payments, your bills will be continually charged to your credit card or taken from your chequing account each month, on a prearranged date. All of your monthly expenses will be paid automatically, without you having to do a thing. By paying your bills on time you are guaranteed to never miss a payment again, resulting in a healthy credit score.
The following information will provide the advantages and disadvantages concerning automatic payments.
Advantages:
- Convenience – With monthly bills being paid automatically, there is little pressure on you to remember to pay on time.
- Travel rewards – Charging monthly bills to your rewards credit card can result in more points for travelling. The accumulation of all your bills, each month, can result in hundreds of points, which is enough points to take a small vacation.
- Increase your credit score – Paying your bills on time will boost your credit score. All online transfers will be on time and contain the minimum amount required. Thus, you should never miss another payment or become delinquent. .
- Environmentally friendly – Automatic payments implies using online transactions and eliminating paper bills and writing cheques. Thus, you will be saving paper and trees, and also save money by no longer having to buy stamps.
- Saving money – Having your bills paid online means you’ll no longer have to pay for stamps, checks, envelopes, or gas in order to get to the post office.
- Less possibility of identity theft – Setting up automatic payments means you won’t need to mail sensitive personal information. This will then decrease your chances of getting your identity stolen through the mail.
Disadvantages:
- Hidden costs – Some companies will charge you a fee to make automatic payments. However, in reality, these automatic payments save companies money. So if this is the case, don’t pay the fee and pay your bill with a cheque instead.
- Lose track of expenses – While everything is being paid for online, without your knowledge, it can be easy to forget what you’re paying for and when. Keeping the due dates of each monthly expense on a calendar can help prevent unnoticed bank errors.
- Stopping payments – While it only takes a matter of minutes to begin automatic payments, it can take a much longer time to end them. If an online option isn’t available to remove the automatic transfers, contact and notify your merchants or service providers at least 2 weeks in advance, before the next scheduled transfer. This can be done verbally, but some companies may ask for your request in writing. If you only want to stop certain payments, not all of them, contact the companies of the payments you want to stop, and they will inform you about their canceling procedures.
- Overdraft fee – Even though money is being transferred online, you still have to make sure there’s enough money in your chequing account to cover the automatic payments. If not, you can be charged expensive fees through bank overdraft charges.
- Increased credit card balance – While your bills are being charged directly to your credit card, it’s also very important to consistently pay off your credit card bill. If not, you could be left with unaffordable credit card debt, which could take years to recover from. In order to prevent this, calculate how much has been paid for automatically and send that amount to your credit card each month.
As you can see, there are both positive and negative results that arise when using automatic payments. On one end of the spectrum, you will never have to stress about remembering to pay your bills. Whether you’re on vacation in the Bahamas or taking care of your newborn, your bills will always be paid no matter what. On the other end, automatic online payments mean that you’re giving businesses access to your bank account information, which puts control out of your hands. This can be very risky and tempting for businesses, as they may take advantage and add “accidental” overcharges to your account. If you’re not always checking your payment history to look for errors, they may pass you by, and you may be paying more than you should. For instance, if you forget to cancel your gym membership, you can still be charged for the next year.
Additionally, bills with a variable rate can be very difficult to track because their prices vary each month. If automatic payments are in place, you could be overcharged. If the amount is higher than what you anticipated, you could end up with an overdraft fee because you didn’t have enough money in your chequing account to cover the amount owed. So, although automatic payments may seem like an easy way to pay bills, which it is, it can also be used as a trap.
Automatic Savings
Saving is like dieting. We all hate to do it, but we know that we should. And when we do, it comes with many positive, long-term results. Similar to dieting, saving can help you create a long and healthy financial history and allow you to reach your financial goals. Moreover, saving is hard when you have so many different savings accounts and various expenses to pay. But, if you set up automatic saving transfers, your money will repeatedly distribute itself into different savings accounts. Too good to be true, right?
There are two ways to do this. Firstly, you can create an automatic transfer from your chequing account into a savings or investment account at your local bank. Secondly, you can have a portion of your paycheck directly deposited into a retirement or other savings account. The following explains the advantages of using automatic savings.
Advantages:
- No effort – Once the automatic transfers are created, there’s no need to even think about saving. You will have a guaranteed amount saved each month.
- Spend less than you make – Creating this type of automatic saving implies leaving your savings to grow unattended (as they slowly accumulate over time). Moreover, if you make the transfers right after you receive your paycheck, you’ll never accidentally spend all the money you’re supposed to save.
- Saving in Separate accounts – Setting up automatic savings means you can choose to transfer your money to different accounts (learn more about managing your savings here). Whether it is a retirement fund, an emergency fund or just money for a vacation, automatic transfers allow you to contribute to each account, every month. With a constant amount being put away in each account, it is guaranteed to have enough money for emergencies, retirement, and a vacation. It may take longer due to a number of accounts open, but it will be effortless. You won’t forget to transfer money to an account and won’t lose sight of your goals.
As you can see, compared to automatic payments, there are no disadvantages when using automatic savings. This is the ultimate, most effective way to save your money. Automatic savings is highly recommended and encouraged; as it significantly boosts your savings and helps you attain your financial goals. With a guaranteed way to ensure you’re consistently saving money, you’ll always have enough money saved for all the amazing experiences you’d like to accomplish in your life.
To determine which one, if not both, to apply to your finances, take a close look at your expenses, income, and your budget. It depends on your financial situation and how you manage your finances. We strongly suggest setting up automatic savings, but not always automatic payments. Automatic savings is almost always a good idea, but automatic payments can lead to financial issues if not managed properly.
