My Stupid $20.91 Bill

But first this good news . . .

A lot of you must have clicked May 6 to tell the Bush Administration how upset you were it would thumb its nose at 191 nations and obstruct the world treaty on tobacco. Your protests, combined with what were doubtless hundreds of thousands more – and just common sense and decency – got the Administration to reverse itself. Read all about it.

And now . . .

I have this stupid $20.91 monthly bill I get, and now that CheckFree has finally abandoned us Managing Your Money die-hards, I actually had to write a check. Gad, the indignity.

Do they even still make paper checks? Talk about retro!

But sure enough, I do still have a checkbook and a pen, and I wrote it for $209.10 instead of $20.91 to save my having to do that again for 10 months.

Ah, you wonder – has he loosened his grip? Or lost it altogether? Why would anyone pay his bills a day earlier than necessary, let alone nine months early?

But behold: Paying nine extra payments saved me 9 stamps at 37 cents each = $3.33. Assuming my time is worth nothing (which is, after all, what you pay me for it), $3.33 is the only advantage I get from writing one big check instead of 10 little ones. But what an advantage! I have tied up an extra $188.19 (on top of the $20.91 I would have had to pay anyway), and earned $3.33 by doing it. Yes, that is only 1.77% ‘interest’ on the money I tied up, but wait! It is tax-free (the government does not tax you on money you saved on stamps) and, more to the point, I didn’t have to wait a whole year to get it. With each passing month that I would have had to pay $20.91 anyway, that initial extra $188.19 that I tied up becomes $20.91 less. It works out to a compounded annual risk-free, tax-free 4.23% rate of return – which these days ain’t half bad. Not to mention the little bit of time and drudgery saved each month.

Yes, if your automatic bill payment service charges you no fee, it’s smarter just to pay as you go – you save nothing by paying faster. But what if the checks themselves cost you a dime apiece? Now you’re really talking big bucks: you save an additional 90 cents, and the return jumps to 5.36%.

Of course, if it’s a $70 cable bill you pay this way (let alone a $1,700 monthly mortgage), you might not be so cavalier. But on the cable bill, if not the mortgage, you might at least pay one extra month. If you paid $140 in a lump instead of $70 twice, you’d save 47 cents by tying up an extra $70 for a month – a dime on the check and 37 cents on the stamp. That’s an 8.06% tax-free, risk free rate of return on your money. Pay triple instead of double, so you need write a check only every third month and, using the same stamp and dime-a-check assumption, your annualized rate of return drops to 5.37%.

Note: you needn’t restrict this practice to fixed monthly charges. If you’re phone bill runs you about $45 a month, you could pay $145, figuring that would likely carry you three months with a little left over. The phone company will just credit you with the difference.

Note: If you run credit card balances, for heaven’s sake pay them off before doing this kind of thing.

Note: This obviously isn’t really about the rate of return – no matter how high the rate, you’re still saving only pennies. Rather, it’s about helping you to save a little time, and feel smart doing it.

Note: The best way to save time, in many instances, is by setting up recurring bills to be deducted automagically from your credit card (if you don’t pay credit card interest) or from your bank account (if you do). Many merchants offer this option.

Final Note: No more check writing for me. Because I had been using CheckFree through Managing Your Money for a decade, I was able to sign on to Quicken Bill Pay in just a few minutes, and found all my payees and transaction history sitting neatly on line. The service no longer integrates with MYM, but I can live with that. And because Quicken charges 50 cents a transaction (if memory serves), much of the above math can still make sense.