A big pain with utilities is not knowing how much you will pay next month.
To avoid overdraft fees, you choose to pay them manually each month.
This approach is both annoying and unnecessary.
With my system, you’ll enjoy three solid benefits:
- Your monthly utility bill will remain the same, so you know what to expect.
- You can set up autopay without ever worrying about overdraft fees.
- You will earn $200-$400* cash back each year just by paying your bills.
My system requires four simple steps:
- Get a credit card that earns cash back on utilities.
- Set up utilities autopay.
- Set up credit card autopay.
- Calculate and automate your monthly contribution.
In each step, I’ll explain exactly how to implement it so you can easily apply the system.
Also, I’ll show a flowchart of a visual representation of the system at the end to solidify your understanding.
Let’s start.
1. Get a credit card that earns cash back on utilities
You need to choose a credit card that earns cash back on your utilities.
Personally, I only pay for electricity, water (which includes trash), and internet. Therefore, the US Bank Cash+ works perfectly for me.
This credit card lets you choose two main categories to earn 5% cash back.
The first category I selected is Home Utilities (electricity and water), and the second category I chose is Internet and Cable, which covers my internet.
If you have additional bills, such as gas or a cell phone, your partner can apply for a second card.
If this doesn’t work for you, consider the Visa Signature Max Cash Preferred Card, which operates in the same way as the Cash+.
The only disadvantage of the Visa MCP is that you need to reselect your categories every quarter, while the Cash+ remembers your selections.
2. Setup utilities autopay
After selecting and getting your credit card(s), set up autopay for all your utilities so that they get paid automatically.
You might worry that sometimes you won’t have enough money to pay the credit card balance.
Don’t worry; I’ll address that.
3. Setup credit card autopay
Now that you have automated your utility bill payments, automate your credit card balance payments.
If you don’t already have one, create a savings account with the sole purpose of paying your utilities, and set up an auto draft from that savings account to your credit card for the full balance.
You might worry about running into overdrafts from this savings account.
Don’t worry; I’ll address that as well.
4. Calculate and automate your monthly contribution
- Calculate your monthly utility bill average.
It’s very simple: just take the total you spend in a year and divide it by 12:
Monthly average utility bill = (total you spend in a year) / 12.
Doing this for the entire year is ideal since some seasons can fluctuate (e.g., the electric bill is higher in summer), but if you can’t, about six months will do.
- Automate your monthly contribution.
This monthly average utility bill will be your automated monthly contribution toward your savings account.
I personally use Capital One 360, and I love it. It lets you create as many savings accounts as you’d like for free, and setting up auto savings is a breeze.
If your bank doesn’t allow you to set up auto savings or if opening a savings account isn’t free, just switch banks; they’re not worth your money.
A problem you might face is getting paid biweekly. No problem; you just need to adjust your calculation a little and set up auto savings biweekly.
Flowchart of the system
For a visual representation of the system and how it works, refer to the flowchart below.
Concerns
- Overdrafts to Your Savings Account
To handle this, just leave some extra money in your savings account to counteract overdrafts.
You can source this money from any savings you already have or set aside some funds for this before starting your system.
If your monthly average is $250, leave $500 to guarantee no overdrafts.
If your account ever falls below $500, it simply means some bills were higher. You can either let it be or refill it. It shouldn’t be much if you calculated accurately.
- Not Being Able to Pay Off Credit Card Balance on Time
This shouldn’t be a concern anymore after automating your credit card balance payments in full.
The money will be withdrawn from your savings account automatically, so your balance will always be paid off.
Conclusion
If you were able to follow my system, you should already have an automated and predictable utility payment system that earns you cash back every month.
Now your utilities are getting paid automatically, you’re auto-allocating the same amount from your paycheck every time for utilities, and you’ll have an extra $300 at the end of the year to use on anything you want.
Enjoy!
If you have any questions, concerns, or feedback, please let me know in the comments.
Notes:
* 5% from $4,500 — $7,100, which is what the average American pays for utilities a year.
