Ways to Prepare for Times When You're Distracted

[khorrell]

I've been working on a post about organizing your finances such that short term distractions (a new baby, a family emergency, etc.) don't result in long-term financial disaster (late fees, bounced checks, etc.) I know that there have a been a few times in my life when it has been necessary to say "I'll worry about the money when this is over."

So far, I've come up with: emergency funds, overdraft protection (to be used only for math errors or situations like I've mentioned), credit cards, and automatic bill payment. Obviously, it isn't a one-size fits all package but more of a pick-what-will-work-for-you type of deal.

I was wondering if anyone else has other strategies that let them forget about their finances for a chunk of time without coming home to a mess.

[Philip Brewer]

I do a couple things with this in mind. In particular, part of my emergency fund is in a pair of 6-month T-bills set up so that they mature 3 months apart, that I manually roll over. If I need that money for an emergency, all I have to do is nothing and the money ends up in my checking account. I don't need internet access or a phone.

Really, though, I think the key is not to set things up to handle any particular unlikely emergency, but rather to refrain from setting things up so that you have to manage things in a hands-on fashion: choose simplicity.

There are all kinds of ways to make a little extra money at the cost of having to be alert and actively manage things. (Getting a zero-interest cash advance from a credit card, investing the money, and paying the loan off before the zero-interest period expires used to be a big one, but there are plenty of others.) I never do that, for exactly the reasons you're talking about.

I think choosing simplicity is a win on several levels.

[starshard0]

I can see how those kind of things would wreak havoc with your finances. I think my strategy, which came about as an accident, works best. I forgot the password to one of my online banking accounts, and there were originally $100 in it. Since I can't access it, it's pretty much off the radar, and in the event of an emergency, I have to go through customer service to get it. A good deterrent if ever there was one.

[KevinW]

Along the lines of what Philip said, I try to automate all our regular financial transactions. At this point everything runs itself, save for my rent check, income taxes, and an annual portfolio rebalancing. If an emergency happened in a typical month, the only thing I'd have to remember would be my rent. My rebalance date is arbitrary so I could safely push it back if I needed to, and I try to do my taxes in February so that could also be pushed back in an emergency.

Also, I pay any non-automated bills as soon as I'm aware of them. I know I could wait until just before they're due to earn a little interest and help my cash flow, but then there's the risk that I forget or get involved in an emergency or have some other obstacle. I'm happy to forgo that tiny amount of interest in exchange for eliminating all risk of late fees.

[starshard0]

Automation is also really useful. I really like spending time on the internet though, so most of my payments are done manually.

[Stephen Dress]

I also highly recommend automation. I resisted the automation of my bills forever because I wanted to catch an error before money was automatically deducted from my account. The reality of it was, I rarely paid much attention to my monthly statements anyway and the ones I did, I never found an error. Plus, who has the time. So I finally gave in and automation is great.

As an expectant father, we have just one of those life events coming up. Luckily, I've already set up auto bill pay for every bill I can (my mortgage included). For those other bills, here is what I recommend.

Since nearly everyone has a fancy cell phone these days, and since nearly all of them have a task scheduler, I set up my phone to remind me to pay my bills. That way on the day I am scheduled to pay them, I get an annoying alarm going off telling me its time to pay the bills. I make sure I set the reminder several days in advance of the due date, and if I can't pay the bill right then and there, I "snooze" the reminder for the next day so it doesn't slip my mind.

[KevinW]

Originally Posted by Stephen Dress

I also highly recommend automation. I resisted the automation of my bills forever because I wanted to catch an error before money was automatically deducted from my account. The reality of it was, I rarely paid much attention to my monthly statements anyway and the ones I did, I never found an error.

Yeah, though if you catch an error after a bill has been auto-paid you can still contact customer service and ask them to correct it. If that doesn't work you can contest the charge through your credit card company. Granted, neither of these are guaranteed to work, but the point is that you still have some recourse when you're signed up for automatic payments.

[Megan]

I'm not a huge fan of automating my bills, though I do have a few automated (cable, gym membership). I don't like the idea of completely losing control of my finances. It might just be a knee jerk reaction from the thought that the Cylons are just lying in wait. However, in this instance, it might be a good idea. I also think that setting alarms to remind you to pay a bill are important. But make sure it's an alarm you will see - if something comes up, will you be on your computer? Maybe not, but you will probably have your cell phone. I'm also a fan of putting all my monthly bills onto one credit card. It keeps everything together, makes it easy to pay in one fell swoop, and I end up with rewards as a bonus.

[Philip Brewer]

Automation, of course, cuts both ways. One the one hand, it means that an emergency that keeps you from getting your bills paid doesn't rack up bunches of late fees. On the other hand, a screw-up in the automation itself can cost lots of money too.

As an example of the latter, suppose you authorize someone to make a one-time debit to pay for something, but it ends up getting entered as a monthly debit instead. A mistake like that can quickly multiply into real money.

Of course, if you check your statements you'll spot an error like that and can easily fix it--but the whole point is, what happens if urgent and important matters swamp your attention?

My own choice has been to keep my finances as simple as possible. I automate almost nothing, but I also try to make sure that I'm not in a position where a lapse in attention will cost me a lot of money.

[financialnut]

The biggest thing that I've ever done is to stay fairly liquid. In other words, I don't have everything so tightly put HERE or irreversibly trapped THERE. We have a lot of cash on hand and a good enough credit line on a credit card that we're okay.