The main arguments against setting up automatic bill payment seem to be running the risk that you’ll accidentally pay for a fraudulent charge on your credit card or miss an unusually high utility bill that hints at an underlying problem.
In my experience, credit card companies have become really good at catching fraud. In fact, too good. They’re likely to cancel your card and send you a replacement at the mere possibility of fraud. It’s a rare experience where a fraudulent charge makes it onto my credit card without triggering an email, SMS and phone call from my credit card company.
Don’t have these notifications set up? Take a few minutes to turn them on. As you’re probably familiar, there are way more false positives than true fraudulent charges.
Another reason you’re unlikely to have a financial catastrophe is that, if you’re reading a financial blog, chances are high you’re already tracking your expenses and logging into your account from time to time and reviewing charges.
I’m not sure that needing to log in to make a bill payment is likely to increase your awareness. But if it is, take a second to think about it. Are you the kind of person who would go for months without reviewing the charges on your credit card? Really?
Second, while paying for a fraudulent charge certainly makes it more difficult to get the money back since it’s now left your bank account, paying for the charge in and of itself doesn’t validate the charge.
You have at least 60 days to dispute a charge with a credit card company (See Section 161(a)). If you don’t notice a fraudulent charge within 60 days, I don’t have a lot of sympathy for you.
So if missing a fraudulent credit card charge is an extremely unlikely scenario, what about missing an unusually high utility bill that’s taken directly from your checking account?
Again, it seems hard to believe that a reader of a personal finance blog would miss this. I have my bills emailed to me and check every one when it comes in. The default setting is that those bills are paid automatically because 99% of the time that’s exactly what I want to happen. If there’s ever a problem, I have plenty of time to take action.
To set up a payment system that revolves around the 1% of times when a problem MIGHT occur seems like a waste. We need to recognize that choosing NOT to automate your finances has a cost.
The cost of paying each individual bill
How many bills do you have? 3? 5? 10? For every bill, you must set a reminder and schedule a time to make the payment. This is going to cause a lot of decision fatigue.
You’re also disrupting the flow of that day by adding a calendar reminder that will cause you to stop whatever you’re doing to make sure the bill is paid. Studies have shown that it takes 25 minutes to regain focus on the original task after an interruption.
Do you really want to schedule 10 disruptions during your month to avoid the 1% of the time you might have a problem? It sounds extreme to give away 250 minutes of focus to an unlikely scenario.
Additionally, you’ve now given yourself 10 opportunities a month to make a mistake. That’s 10 times where perhaps you have a bad day, get busy, have an unexpected crises, or otherwise make a mistake. As we know, humans are not perfect. Betting that you’ll get this right 1200 times over the next decade seems like a sucker’s bet.
Behavioral science and automated investing
Much has been written on setting up automatic investments, but it’s worth repeating that the basic fundamentals of human behavior will trip you up here as well.
Every time you manually choose to make an investment, you’re making a choice between consuming now and consuming later. That choice is painful. It feels like you’re giving something up. We’re all familiar with it and it’s a reason why children have a hard time delaying gratification. It just doesn’t feel right.
Knowing that, you’re betting against all of evolution if you set yourself up to manually invest each month. Sure, most months you’ll make the commitment and transfer the money. But there could be one or two “special” months where you make a different choice.
Don’t worry, even us lawyers are prone to make financial mistakes. The trick is recognizing that we’re all human and adjusting accordingly.
Joshua Holt is a former private equity M&A lawyer and the creator of Biglaw Investor. Josh couldn’t find a place where lawyers were talking about money, so he created it himself. He spends 10 minutes a month on Empower keeping track of his money. He’s also maxing out tax-advantaged accounts like 529 Plans to minimize his taxable income.