We still pay most of our bills manually, by which I mean we don’t have automatic payments set up. While I recognize the advantages of automatic bill pay (no postage, time saved in writing out checks, etc.), I actually enjoy the task of paying bills the old-fashioned way. I like writing out checks and recording the bills by hand; it helps me better monitor our family’s spending.
I generally pay bills the day I receive them. Due dates seem to be getting closer and closer to the date of receipt, and I don’t want to risk having to pay a late fee because the post office was slow in delivering my checks. By paying bills as soon as I get them, I break one of the personal finance rules my parents taught me – wait as long as possible to pay bills so that you can collect the interest on the money.
Is it better to wait or pay bills immediately? The question is moot if you don’t have the money available, but when you have it, the risk of late fees has to be weighed against the potential loss of income. For payment on loans, of course, it’s usually best to pay right away because your debtors will be collecting less interest on your money, but what about when the cost is the same no matter when you pay?
This week, the question of when to pay came up when I got a property tax bill for $2,700, which was not due for two months. If I had that money in a savings account earning 0.25%, I would earn just over $1.00 in interest. While I have been known to take advantage of opportunities to save $1.00, I wouldn’t risk forgetting the bill and losing the early-payment discount rate for that amount. My money market account, however, pays somewhat better – over two months, I could earn about $10, an amount I consider worth waiting to pay a bill for.
Even more significantly, by paying the bill early, I would lose out on the opportunity to make even more on that $2,700 through investments. Last week, my husband made $100 on a similar amount of money through a short-term stock market trade. Our $2,700 could earn a lot in the stock market in two months, but we could also wind up with a loss if we have to sell a stock that’s down when the bill comes due.
We have already used this tax money to our advantage by getting it out of escrow several years ago. When we received a notice that our tax authority had no record of receiving a check from our escrow account, we called the mortgage company and discovered that our responsible payment record and level of equity had earned us the right to close the escrow account and pay our own taxes – not only is that money now ours to invest until the tax bill comes each year, but our mortgage is also $200 lower each month!
I probably should have held the tax bill for a while before paying it, but I didn’t. Yes, I lost some money, but I gained some psychological advantages – a sense that I had one less thing on my to-do list, and one less payment to consider when figuring out what money we will need available in the upcoming months. I paid the bill within a week of receiving it – but I dropped it off at the tax collector’s office, which I passed on my way to the doctor’s office, so that I could save $0.84 in stamps.
Image courtesy of Aunt Owwee