Make the Right “BIG” Decisions – Automate Payments (pt. 2 of 5)

By Olivia Sandham

Last week, our blog discussed how making small financial and health decisions and changes might not work, because many small changes are either sacrifices in disguise, or the effort outweighs the outcome.  So this week, let’s take a look at the first and most extensive financial “BIG” decision that can be made with little effort and sacrifice, but can have “BIG” results.

A U T O M A T E    P A Y M E N T S

Setting up automatic payments for any type of recurring financial debit or credit can be a very beneficial decision for your financial situation.  Here is a list of many of the types of payments you could automate.

Directly deposit your wages from your employer into your bank account
Automatically pay:
- Rent/Mortgage
- TV/Cable/Internet/Cell
- Utilities
- Subscriptions
- Insurance
- Credit Cards
- Savings
- Investments (such as an Individual Retirement Account)

Benefits:

• No more missing payments or making mistakes on payments.  Set up automatic payments correctly and your payments will be on time and in the exact amount you want.  With direct deposit, your money will be in your account around the same time every pay period.
• More time for the other aspects of your life.  The amount of time it takes to set up and monitor an automatic payment (which you only have to set up the ONE time) will most likely be less than what it takes to collect, open, sort, and file the bill you receive in the mail (a process that occurs every month), and that doesn’t even include the time it takes to write the check, tear off and fill out the payment stub, stamp and fill out the envelope, and put the envelope in the mail (whew!).  Also, setting up a one-time direct deposit or automatic savings/investment payment can save time and hassle of frequent visits to the bank to deposit checks or transfer funds.
• Save money.  You could save on checks, envelopes, ink, stamps, and the cost of fuel used for trips to the store for these items, or the bank to make your deposit.  Plus, some institutions offer better account options, waive certain fees, or supply rewards or other benefits for having automatic payments/deposits or emailed statements, because it saves on their bottom line since less paper and less labor is needed.
• Making full payments - on time, every time - will help your credit score.
• Eliminating all that paper and driving saves on the environment.
• Finally, automatic payments have the flexibility to update, change, or cancel your payments with just a brief phone call or a few clicks of a button online.

Effort:

1. If you are interested in direct deposit from your employer, talk to your Human Resources department.  For most companies with direct deposit, all you need to do is fill out paperwork and supply them with a voided check, deposit slip, or letter of authorization from your bank.
2. In order to set up automatic bill and investment payments:
• You will first need the information for accounts you wish to automate (found on your bill or statement).
• Next, you will want to either 1) Contact your bank and set up online bill pay, or 2) Contact the companies through which you have recurring payments and set up automatic bill pay.
• Any of these steps can be accomplished by making a call to customer service, or setting up automatic payments online.
3. Where possible, you may want to consider switching to companies which DO allow automatic payments.
4. Of course, you should monitor automatic payments to make sure they are the correct amounts occurring at the correct time.  Log into your online account and look at the most recent transactions.  Remember to watch your balances, because you wouldn’t want to overdraft your payment account, or overpay a bill.
5. For the savvy and experienced auto-payer, you could consider using a rewards credit card to pay your bills, and then pay off the full credit card balance every month.  This allows you to earn points/rewards while also making a few monthly payments from your checking account.  Again, this is ONLY recommended if you pay off the credit card balance in full every time you make a payment, because you DO NOT want to build up any more debt.

 

Next week, we will take a look at more of our financial and lifestyle “BIG” decisions that can have “BIG” results with little time and effort.  Stay tuned!

Credit Card Mistakes to Avoid

Whether due to confusion or carelessness, credit card mistakes are all too common. The fallout can be costly, no matter what the cause. Even a single slip-up can result in higher interest rates, lower credit limits, unwanted fees or dings to a credit score.

New rules put in place by the Credit Card Act of 2009 and the Dodd-Frank Act of 2010 help, as does the formation of the Consumer Financial Protection Bureau, which monitors the credit card industry. But ultimately it’s up to you to use credit wisely.

Take a look at this slideshow on Kiplinger.com to see a detailed explanation on 11 of the most common credit card mistakes and to learn how to avoid making them.  We have also included a simple list below.

1. Paying bills late
2. Bundling balance transfers
3. Making minimum payments
4. Using up all available credit
5. Ignoring monthly statements
6. Racking up foreign transaction fees
7. Taking cash advances
8. Spending to earn rewards
9. Paying excessive annual fees
10. Chasing teaser rates
11. Neglecting credit scores

Quiz: Do You Know the Keys to Financial Security?

The following quiz has been designed based on economic journalist Knight Kiplinger’s “8 Keys to Financial Security”, an enlightening publication with Kiplinger’s own personal financial wisdom.  The article was first introduced in 1997 in the 50th anniversary of Kiplinger Magazine, and again in both 2002 and 2008.  Along with being an economic journalist and active philanthropist, Kiplinger is the Editor in Chief of Kiplinger Washington Editors in Washington D.C.

1. Where should your money be spent or invested first?
a. Giving money to my children
b. Investing in myself
c. Paying off debts
d. Increasing my investment portfolio

ANSWER: (b) Investing in myself.  Developing and increasing your knowledge and skills through continuous education and training should be considered your most valuable asset, since this will ultimately determine your overall earning power.

2. What is one of the most important items to acquire as you move forward in life?
a. Stocks/bonds
b. A house
c. 401K
d. Insurance

ANSWER: (d) Insurance.  Prior to investing in financial assets, make sure you have enough insurance to cover the big risks in life such as serious illness, disability, or early death.  If an emergency arises, insurance will take care of it and you will not have to dip into your financial investments as much.

3. What items should you purchase using borrowing methods (credit)?
a. Everything should be purchased with credit
b. Low price, short-term items that you can pay off quickly, such as clothing, travel, and entertainment
c. High price, long-term items such as education courses or a car or home
d. You should never borrow or use credit

ANSWER: (c) High price, long-term items.  Use your borrowing methods wisely to purchase investments of lasting value, and make sure to pay off as much as possible as quickly as possible to avoid interest fees.

4. In what order should your payments take place?
a. Investments, savings, bills, credit card
b. Credit card, investments, bills, savings
c. Savings, bills, credit card, investments
d. Bills, investments, credit card, savings

ANSWER: (a) Investments, savings, bills, credit card. Trim and prioritize your spending so that you are able to pay into your mutual fund, money market, or brokerage account first so these investments can continue to grow.  Then add money to your savings account/emergency fund and pay all of your regular monthly bills.  Finish up by making a payment toward your credit card or other debts.

5.  What is the best method to investing?
a. Take big risks; the more times you swing, the more homeruns you will hit.
b. Take moderate risks; you hit some and you miss some.
c. Take a risk and swing only when you think the time is right.
d. Don’t take any risks at all; you can’t lose if you don’t play.

ANSWER: (b) Take moderate risks.  Use dollar-cost averaging to invest regularly in markets whether they seem good, bad, or indifferent, and maintain the patience to wait out the occasional bear market.

6. What should be included in your investment portfolio?
a. Strictly liquid assets, such as savings and cash accounts
b. Only safer investments like bonds and CDs
c. Only high return assets such as stocks and high-yield bonds
d. All of the above

ANSWER: (d) All of the above. Successful investors know that each asset category will perform at some point, and on the reverse, each category will also have a time of lull.  Having a diversified portfolio with all of these types of assets will ensure the best performance over the long-haul.

7. Which famous quote should be your personal money mantra?
a. “We are what we repeatedly do; excellence, then, is not an act, but a habit.” –Aristotle
b. “I’d like to live as a poor man with lots of money.” –Pablo Picasso
c. “You only live once, but if you work it right, once is enough.” –Joe E. Lewis
d. “A penny saved is a penny earned.” –Benjamin Franklin

ANSWER: (a) Aristotle said it best.  Saving money is always a good idea (Franklin), but making investments allows for growth you wouldn’t otherwise experience.  Also, you shouldn’t have to feel as if you are living in poverty (Picasso), but living beyond your means (Lewis) is not the right concept either.  Instead, get in the habit of making consistent and informed financial decisions on a daily basis, and you can lead an agreeable lifestyle while keeping your long-term goals achievable.  If you need to, look closely at your current lifestyle and budget, trim back dispensable spending, and invest and save on a regular basis.

8. How generous should you be when giving your time and money to others.
a. I should occasionally give a small amount to others
b. Giving to others should come first
c. I shouldn’t give anything to others
d. I should give what I can afford to give, when I can afford it

ANSWER: (d) I should give what I can afford to give, when I can afford it.  You own financial security is connected to the financial, physical, and spiritual health of others in your community, in our nation, and in our world.  Sharing your good fortune by donating your money, time, and talent helps to create a stronger economy and a healthier, safer world, which benefits us all in the long run.