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The Hazards of Financial Automation

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Everyone loves automation. It’s the cornerstone idea of David Bach’s Automatic Millionaire, the idea that if you make saving automatic, you’ll retire rich (an idea I subscribe to). By automating good behavior, you take human nature out of it. It prevents you from hurting yourself.

In my desire to simplify my finances, I’ve automated a lot of our financial “processes.” Our mortgage payments are auto-debited from our checking account. Our auto insurance and homeowners insurance is automatically billed to my credit card. Even our credit card payments are made in full automatically. It’s a great system that requires only a little maintenance each month (mostly reviewing credit card statements).

There are, however, risks to automating too much. Automation works well when you’re just doing the same thing over and over again. Our mortgage payment doesn’t change (it gets adjusted once a year to account for property tax increases and the like), so automatically debiting the regular monthly payment makes sense.

The riskiest automation we use is in paying our credit card bills. Our bills are fairly steady each month but the risk is that we don’t catch fraud fast enough. I used to use the email notifications as my reminder to go into my account, review the statement, and pay the bill. Nowadays, the emails just remind me to review the statement. It would be easy for me, during a busy day, decide not to review the statement and not pick up fraud until it was too late.

Credit card fraud protections are pretty good but some card issuers consider payment to be acceptance of all the charges.

Automation also breeds laziness. If I have to pay the credit card bill each month, that’s at least one moment in which I’m thinking about how much we’re spending each month. It may seem inconsequential but it’s important to check in and review your finances regularly. Reviewing a credit card statement is as good a time as any.

I’m all for automation and simplification, just be aware that there are risks associated with making things too easy.

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18 Responses to “The Hazards of Financial Automation”

  1. I’ve seen automation go bad, where the companies have made mistakes and overcharged, and it was such a hassle to correct. I prefer to make a payment schedule, set up reminders on your calendar, and pay them accordingly.

  2. Courtney says:

    We’ve gone paperless on pretty much everything, and automate all our bills *except* the credit card bills. I’m less concerned about fraud (I check the statements at least twice a week anyways) and more concerned about making sure to move money from other accounts to our main checking account to pay the cc bill (i.e. car repair on this month’s bill = have to move money from the “car maintenance” ING subaccount to the checking account before the bill is paid).

  3. Hi Jim, I’m mindful of my expenses, don’t have too many bills, and prefer to pay them electronically each month. That way I keep in touch with my spending! It doesn’t take too long either.

  4. Holly says:

    i have had WAAAY too much trouble w/automated payments to EVER do this again. The Life insurance company was STILL auto debitting payments several months after they paid out the policy.

    I had a HORRIBLE time getting it stopped and getting those payments back. Took a letter from my lawyer hinting at filing a State Comptroller of Insurance FRAUD complaint to get it stopped and get the repayment.

    NEVER again!!!

    • Shirley says:

      I too went through a hassle like this with an insurance company and now have only a few small consistent bills paid automatically. I choose to use the manual bill pay feature and retain control over what comes out of my checking account.

      • Courtney says:

        You can still automate a “push” payment (originated through your bank) instead of a “pull” payment (originated by a third party). We do this for several of our bills.

        • Shirley says:

          Courtney,
          I don’t understand what a push or pull payment are.

          • cubiclegeoff says:

            A push payment is one that is set up through your bank account. So you tell your bank to send the payment. A pull payment is when a company takes the money from your account. It’s probably easier to cancel or change a push payment since it is your own bank.

          • Shirley says:

            Thank you, cubiclegeoff. Now I understand the terms and, in fact, have had push payments all along… just didn’t know the jargon. ;-)

  5. DreamChaser57 says:

    I am leary about giving third parties unfettered access to my checking account. I loathe even the idea of it. If an emergency comes up, I want to be able to quickly assess my account, and pending fiscal responsibilities and tweak things as necessary. We do mostly online bill pay.

  6. cubiclegeoff says:

    I do use it for my student loans, utility bills, and life insurance. However, most of those are through my checking account. When you use a credit card to pay a bill, you have to be careful. I have my internet paid automatically by credit card (I wasn’t even given a choice), and when I changed my credit card online when the number changed, it didn’t go into effect and so I had a missing payment (which they never warned about, emailed, or anything). I changed it again online, and I still wasn’t notified when again that didn’t work. I had to call up and talk to someone to finally get the change to stick.

  7. LouisC says:

    Trust but verify – I automate everything and use Quicken; I check Quicken almost every day when I download all financial transactions. I don’t worry at all about fraud.

  8. Scott says:

    I’m an auto-junkie. The only thing I do use to review ALL transactions is Mint.com. This allows me to see what all is going on as I keep aware of my budget vs spending.

    I even send my contribution checks to my address (with the recipient’s “pay to”) and then take them to the church…I’m going to probably do the same for the cleaning lady…

  9. Scott says:

    p.s. I’ve been doing this for 14 years or so and have had maybe 1 incident that was fully taken care of by the bank.

  10. Debrajoy says:

    Auto-pay works for us and we’ve been doing it for over 5 years.
    After my husband got a few late charges and the time it took me to reverse them, (all were waived as a courtesy) I took over ALL bill paying. (I have ZERO Tolerance for fees!)
    Home Mortgage, loans, utilities, phone/internet ~ tho only our Main CC bill are Auto-Pays and we have never had any trouble with it. NONE.

    It beats late charges! and I am very conscious and ‘aware’ of our spending habits and can see if anything looks out of order, pretty easily.
    (My credit score is in the high 700′s, as we are never late on payments and That saves us money too, as we get some really good offers from our bank and CC companies ~ for 0% or very low-interest loans)

    I DO get All hard-copy-paper Credit Card and Bank statements AND give it a general (but pretty thorough) “lookover” Immediately when I daily, go thru the mail.
    When it comes as ‘Paper’ (rather than online)~ I am holding it IN my hand and am compelled to go over it and don’t have to be in the vicinity of the computer to do this.
    If I see anything, whether it be biller names or dollar amounts, that don’t look familiar ~ I put a red dot next to it ~ and go over it with my husband for clarification.

  11. Recently, I decided to change my automatic payments to be charged to my credit instead of debit cards after a mistake in billing from my phone company. I think that if you are going to automate your finances, credit cards are the way to go.

  12. Scott says:

    Just configure email alerts through the credit card company. If a charge is made on your account that is more than $500, have them send you an alert. Set the value high enough to avoid nag mail. If you’re too lazy to check your email, you’ve got bigger problems.

  13. skylog says:

    at this point, i can not imagine my financial life without automation. i do not have everything set up, but enough that i feel it makes everything easier. easier in the actual process as well as in building funds/investments…etc


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