It’s Time to Rethink Automatic Payments

February 27, 2013

As the landscape of my financial picture continues to change, I must be willing to change with it.  I have shared with you my recent discovery that I am not having enough federal income tax withheld from my paycheck, so as I decrease my withholding allowances, I can anticipate a decrease in take-home pay.  Couple that with increases in expenditures such as groceries (I am thinking about adding a revolving door to my pantry now that my oldest son is about to become a teenager) and gas for the car and you start to see why I need to reevaluate my spending plan.

As I looked over my expenses for the last several months, I noticed that I had quite a few expenses that are on automatic payment.  I’m usually a big fan of automatic payment as a way of making sure I never miss a bill, but while “auto-pay” has its benefits, it also has its pitfalls.  You see, over the past few years, I have become too reliant on auto-pay as a way to manage my cash flow, but in so doing, I have allowed some expenses to go unchecked for way too long.  Here is a look at some of them and how I plan to shake things up:

Netflix

I’ve been a subscriber to Netflix since 2008, and when I first subscribed, I was getting 3 DVDs at a time.  Since then, Netflix has added streaming video, Blu-Ray Discs™, and other subscription options which make it much easier to customize the level of entertainment for your needs.  As my life got busier, I changed my subscription to 1 DVD at a time (I mean really, how many DVDs can you watch at one time?), but even now weeks go by before I get a chance to watch it.  Meanwhile, I’m paying about $10 on auto-pay to watch one, maybe two, videos a month…not anymore.

I’ve recently discovered Redbox.  You’ve probably seen these machines at the grocery or drug store.  They basically let you rent movies one at a time, so rather than paying a subscription, you just pay for what you use.  Imagine that?  The last movie I rented was under $2 and that may be the only movie I rent this month.  Review your entertainment habits and do the math.  If your rental activity is high enough, it may justify the monthly subscription fee, but if not, check out the alternatives.

Satellite TV

I’ve been with my current provider for about three years and like with most phone and Internet providers, adding the TV service came with huge incentives. But those incentives have since elapsed, so now may be the right time to shop for a new provider.  In fact, I’ve got other providers calling me with some tempting offers, so here is what I plan to do.

I’m going to call my current provider (who is giving new customers better deals than I have right now) and I’m going to let them know that I’m being courted by another provider and unless they are willing to cut me a deal, I’m going to cancel my subscription (which, of course, is on auto-pay).  Why should I pay over $70 when I can get essentially the same thing for half that much? Thankfully, my house is already wired for whichever provider I choose, so making a switch is not that hard.  If you’ve been with your current provider for more than two years, you’re probably out of contract, so now would be a good time to ask for more.

Insurance

I currently have my car, home, and life insurance on auto-pay (actually my home insurance is paid through escrow as part of my mortgage payment), so it’s easy to overlook changes in rates or to be paying too much relative to what is available in the marketplace.  Personally, I think it is a good idea to review insurance coverage and fees at least once a year.  That doesn’t mean I think you should be switching insurance providers every year, it just means that you should be aware of prevailing rates in the marketplace. When I first moved to North Carolina, I picked up a new insurer on my vehicle and each year that insurer slowly increased my rates. But a few years ago, I switched insurers because my current provider had priced itself out of the market, so for the same coverage, I paid less.

Cell phone

This is another expense that can easily go undetected if you are using auto-pay.  Similar to the TV industry, there is a lot of competition for your business, so when you are out of contract, it is a good idea to shop around.  Most carriers are able to switch your service and keep your phone number the same, so make sure you are getting the most from your present carrier.

Our family has opted for pre-paid phone service.  Kind of like the Redbox idea, we pay for what we use.  The problem is auto-pay.  When our minutes run low, they just automatically top-up, which kind of defeats the purpose of budgeting minutes.  To combat this, I can simply switch off the auto-pay feature and use prepaid minute cards to top up whenever my minutes are low.  That will keep the kids in check.

iTunes

Just like with the cell phone, services such as iTunes can also present a problem.  While these services may not be traditional subscription services like the others mentioned, they do fall into the auto-pay category since your purchases are automatically charged to a credit card.  If you are like me, you never want to carry a balance on your credit card, so I have my credit card on auto-pay.  Ergo, if I use my credit card to make purchases on iTunes and my card is on auto-pay, then iTunes is on auto-pay.  The solution is the same as with the cell phone.  There are iTunes gift cards that can be used to purchase items, so make it a policy to only pay for iTunes purchases using one of these cards.

Don’t get me wrong. I love the convenience of auto-pay, but as you can see, that convenience sometimes comes with an unintended price tag.  Be diligent in monitoring your expenses no matter how you pay them.  Saving a dollar here and a dollar there can really add up over time.