Do Automatic Payments Increase Spending?

posted by Andrea | 04/30/2014

flying money

I’ve already shared a bit about how we automate our saving and investing to help us save and invest more. I’ve also shared how we purchase almost everything with our credit card and have our credit card, our mortgage, and any other bills automatically withdrawn from our checking account each month.

The truth is, we almost never need to manually make a payment or move money around — we have everything set up to automatically do what it’s supposed to do every month. This saves us LOADS of time and energy by not needing to write checks, keep track of our bills, make sure we make the payment on time, etc. etc. In addition, we don’t have to deal with paper statements and a bunch of extra junk mail.

As I’ve shared our paperless and automatic way of running our finances over the years, I’m often asked if I think automating things makes it easier to inadvertently increase our spending (even if it’s just a little bit).

That’s a good question — and honestly, my “short answer” is YES.

It IS easier to bump the heat up a few degrees in the winter or overlook a small increase in our cell phone bill because I never actually “feel the pain” of writing the check at the end of the month.

It IS easier to justify a mini splurge at the grocery store when I just swipe my card and never have to think about it again.

It IS easier to swing through a drive-through (even if we don’t have gift cards) when we’re running short on time and don’t feel like eating leftovers for dinner.

I will be the first to admit that by automating our payments, we have the potential to increase our spending. HOWEVER (and that’s a big “however”) I personally feel that the amount of time and energy we save by not worrying about all these financial details every month definitely outweighs the small amount of extra money we might spend. 

I realize this might not be the case for everyone, but since Dave and I honestly don’t spend that much money, the number of times we would have the potential to over-spend are not that many. In fact, if you saw our credit card bill (and we pay for EVERYTHING with our credit card) I think many of you would be shocked at just how few times we swipe our card each month.

Our “normal” monthly credit card bill contains the following:

All our utility bills (gas, electric, cable/internet, and cell phone)

4 or 5 trips to Meijer (our local grocery store — and pretty much the only store I visit each month)

2 or 3 stops at the Meijer gas station (Dave’s car gets really good mileage and I hardly drive anywhere)

Maybe 1 order from Amazon.com (if I don’t have enough credit built up to cover my order)

Maybe 1 restaurant bill (on the rare occasion we go out to eat without gift cards)

Along with our more “normal” monthly expenses, we also have seasonal expenses that are automatically charged to our credit card.

Trips to a hardware store for home/garden/project supplies (usually more in the summer time)

Home insurance (every December)

Auto insurance (February and August)

Water/Sewer bill (every 3 months)

Gifts for others (birthdays/holidays/etc)

So as you can see, there aren’t many opportunities for me to overspend — especially for someone like me (I can talk myself OUT of buying almost anything!)

Dave and I rarely buy new clothes (in the past, I have gone over a year without buying anything new), I get all the kids clothes as hand-me-downs or from ThredUp, I borrow items all the time, I use Craigslist to find anything else I think we might need/want, and I just really REALLY don’t buy very much.

.

I personally know many, many people who have stopped using credit cards and stopped automating their payments for the simple reason that they were spending a lot more money than they should have.

If you’re the type of person who knows you overspend when using credit cards and automatic payments, then I definitely don’t think that’s the right way to handle your finances… and I commend those of you who are using an all-cash budget to save more, spend less, and get your finances back on track!

I personally have never used an all-cash budget (and I don’t anticipate ever switching to all cash), but I DO think that even my modest monthly spending would be curbed a little if we used all cash and didn’t rely on automatic payments for everything. However, as I mentioned above, for me and for our family, the small potential increase in spending is worth it for the time and energy it saves me each month.

Do you automate your finances? Do you use all cash? Or do you have another method?

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18 comments

  1. Carolyn

    04/30/2014

    Great tips!

    We have to weigh the value of our time. Sometimes it is worth it to spend a little more for convenience and less stress.

    [Reply]

    Andrea Reply:

    Exactly! I’m usually 100% for saving money (even if it’s a small amount) but more and more, as my time gets less and less, I find that I do have to weigh the pros and cons. And sometimes, spending a LITTLE bit extra is worth it for my sanity!

    [Reply]

  2. Tessa

    04/30/2014

    We automate all of our finances to save time, but I also have the mint.com app on my phone that I check daily so I can keep an eye on every transaction. We also set up monthly budgets in the app to help keep spending on track.

    [Reply]

    Andrea Reply:

    Hmmm… maybe I should look into the Mint.com app. Is it free?

    [Reply]

    Amanda Reply:

    totally free. you can set it up on mint.com or through the app (available on both android and apple – they also have a tablet app)

    [Reply]

  3. Kristy Farrow

    04/30/2014

    Do you ever worry about identity theft?

    [Reply]

    Andrea Reply:

    honestly, no. We feel that if someone wanted to steal our information, they could do it whether we do online automatic payments or not.

    [Reply]

  4. Lydia @ Five4FiveMeals

    04/30/2014

    Most of our bills are automated and I don’t think it has increased our spending at all. We have a written budget and when it goes out of our account we check it off and move on.

    [Reply]

    Andrea Reply:

    good for you Lydia!! i honestly don’t think our spending has increase a ton… but I definitely think the potential is there

    [Reply]

  5. Irina

    04/30/2014

    My husband and I automate everything. Most bills go on the credit card, except the ulitities (they come out automatically from the chequing account as the utility company doesn’t allow credit card billing), and the utilities is also the only statement we get by mail as they don’t have the online option (can you tell the utility company is a bit behind the times?)

    We do pay the credit card in full at the end of every month (like this morning!) and save automatically. I don’t believe it increased our spending at all, it’s quite the opposite… When I see a lot of transactions going through the debit and credit card, I subconsciously want to make the statement shorter and simpler, so I think twice before I swipe that card.

    As for cash, once the big bills get split, I find it’s so much easier for me to spend it… It just seems to disappear… Not to mention I don’t get cash back or anything for spending cash! SO my husband and I almost NEVER have cash unless we know we are going to need it for a specific cash-only purchase… I can tell you I have less than a dollar in change in my wallet now! I know a cash budget works great for some people, but I prefer a paper trail and 2 statements (credit card and chequing) for keeping track of our stuff.

    [Reply]

  6. Amanda

    04/30/2014

    Ditto Tessa – we use and love mint.com (we created just one account and share it). It allows us to set budgets for particular items, and see exactly where our money is going. I like the breakdown and it helps us to make sure that we’re staying in check (I always laugh when it yells at me in Nov/Dec – we plan to spend extra money as we get into the Thanksgiving/Christmas/and several family birthdays season, but it flips out because we end up over our grocery budget and our shopping budget that we normally have set (although, like I said, in our actual budget, that is accounted for and we set money aside during the year to cover those additional costs we incur in the last 6wks of the year))

    [Reply]

  7. Debbie

    04/30/2014

    Hi Andrea,

    I noticed in this latest post that it seems as if your family does not eat out often. Does Dave ever cook for the family? I’m asking b/c after 10 years of marriage and 10 years of cooking every single meal I just get SO burnt out. My husband does not cook, however, he does do all the dishes which is very helpful. We go out to eat so I can get a break from cooking! And we spend more money in that area than I like. I can’t seem to find a happy medium. If we don’t go out at least once a week I feel like I’m going to scream from cooking/planning another meal. Yet if we do go out I feel wasteful.

    On another completely different note, have you ever posted about which cell phone plan works best for you? I would bet you have some great tips!

    [Reply]

    Andrea Reply:

    No Debbie, we don’t go out to eat all that often — just to Culver’s maybe once or twice a month (but we almost always have gift cards)

    I do all the cooking but Dave also does the dishes (like your hubby) so that’s super nice. However, I think this post will answer all your questions about how I avoid meal planning burnout :)

    As for the cell phone, we use Verizon, we have the absolute cheapest plan you can get (no texting even) but then we do pay for the data program since we have iPhones. We always get our phones for free by getting older models :)

    [Reply]

  8. Heart and Haven

    04/30/2014

    I also automate most of my bills. I find this to save money, as I don’t have to worry about time-sensitive payments (ie. mortgage & ins. payments being late) or be charged with late fees. However, I have them set up via bill-pay through my checking account (exception are utilities that vary month-to-month, but then I still pay via bill pay through my bank account.) This way I have greater control of what “goes out” of my checking account, instead of what gets “automatically pulled” through an automatic payment via cc. This is especially useful for the occasional times I’ve seen an error in billing, etc. It has also proven helpful with a couple of times seeing fraud on our cc and having to close the account and getting a new card issued….I don’t have to remember to reset all the auto payments again.
    Since both hubby and I purchase almost everything exclusively with debit or credit card, we can have a better “checks & balances” of where our money is being spent every month and greatly helps us adjust our budget. But we’re also careful to not buy things on credit card, if we were not to be able to purchase with cash – so we rarely overspend.

    [Reply]

    Andrea Reply:

    good point about the late fees — I didn’t even factor that into my decision. I’ve never ever paid a late fee in my life because the automatic payments keep everything going in and out at the right times!

    [Reply]

  9. Kalyn Brooke

    05/02/2014

    Interesting perspective! I don’t like using an all cash budget, but I find myself fighting against automation because when I worked at a bank, I saw how frustrating it was for people who were trying to stop their payments, and the companies kept taking it out of their account. I guess that has just scared me away! Sounds like you have a great system though. :)

    [Reply]

  10. Elyse @ THe Benefits of Balance

    05/02/2014

    We most definitely automate everything! Like you, we are very consistent with our spending and tend to think our purchases through before making them. Since we weren’t worried about over spending simply because we weren’t dishing out cash, we decided to automate to 1. save time and 2. save money – envelopes, stamps, checks, plus any late fee or interest charge ends up being WAY more than we might spend by automating our payments. I still receive the electronic statements and I still see the amount show up on our credit card statement so I’m still in the loop with what we are spending without the hassle.

    [Reply]

  11. SJ

    05/26/2014

    How do you automate your credit card (paying off each month) if you don’t know
    exactly how much you’re spending?

    SJ

    [Reply]

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