An Argument Against Automatic Payments

Posted on | November 17, 2008 |

I’m familiar with the arguments for automated bill payments and I understand the appeal. However, I feel there are compelling reasons to NOT make automatic payments. Here we go:

It can, and has, been argued that automatic payments help save time by eliminating the need to physically pay bills and save money by eliminating the risk of late fees. Clearly, saving time and money are desired goals. Still, the question that begs to be asked is do the advantages outweigh the disadvantages?

I believe that spending money should be a conscious act. It’s much harder to spend recklessly if one has to purposefully and consciously hand over every single dollar, or penny, they spend. This principle is clearly seen in the practice of paying cash for all purchases — the argument being that people think harder about spending cold hard cash than they do when they charge to a credit card.

The problem with automatic payments, whether it’s the mortgage payment, the cable bill, or your gym membership, it’s just too easy to forget about the money being spent automatically. By taking an active hand in how every single dollar is spent, we have the opportunity to re-evaluate our financial decisions every month.

For most people, their mortgage/rent is their single largest monthly expense and, therefore, difficult to forget. But the act of consciously writing that check can be used as a sobering reminder of the percentage of monthly income spent on housing alone. Or maybe it’s an affirmation of how far you’ve come or how grateful you are to have a home.

In the case of monthly memberships fees for the gym or on-line communities, Cable TV or Netflix, conscious payments are a great reminder to perform monthly evaluations of the value we receive from such memberships.

My Netflix payments are billed monthly to my credit card so I make a point of hand recording into my budget the fact that “only $13.99 per month” is actually $14.98 every month. Still, when buying tickets for a play or concert or movie, it’s all too easy to forget that I’ve already automatically spent 15% of my entire monthly entertainment budget.

Taking an active hand in spending every single dollar you spend allows for greater flexibility and quick corrections; it avoids complacency; it encourages continual re-evaluation of decisions; it can reaffirm good decisions; and can reconnect us with forgotten blessings. Automation can be good but there are obvious advantages to conscious and willful action as well. Choose the method that best suits your circumstances and personality.

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