The last article, Paying Bills with Credit Cards, and Differentiating Between Automatic vs Manual Bills, introduced the following types of bills:
- Fixed-Cost Bills
- Variable-Cost Bills
- Occasional-Cost Bills
The article also discussed how the bills are paid:
- Automatically Paid Bill
- Manually Paid Bill
And, it mentioned how the payments for the bills are funded:
- Manually Funded Payment
- Automatically Funded Payment
This article is going to expand on the specific scenario of paying bills that are fixed-cost, automatically-funded, automatically-paid. In other words, bill payments that can be fully automated.
Quick Summary of Additional Terminology from Previous Articles
The previous articles in this Engineering a New Banking Model series have always assumed the wages should be deposited into the checking account. Then, you would manually transfer the money into the unallocated vault. The funds remain in the unallocated vault until you schedule bill payments, at which point you move the funds from the unallocated vault into the main savings account (i.e. unvaulted savings) from which the funds are removed when the bill is paid.
To be clear, this uses SoFi Bank terminology of "vaults" as a form of isolation buckets, where a specific vault can be created and named "Unallocated". The "unvaulted savings" are what SoFi calls "Available Savings", which are the funds in the savings account that do not reside in a vault, and thus I call that money "unvaulted".
Full Automatic Payments
If the cost of a bill does not generally changed from month-to-month, it is a fixed-cost bill. If the bill is automatically paid each month without having to manually schedule a payment, it is an automatically-paid bill. If the funds from which to pay the bill automatically show up in the unvaulted savings, it is an automatically funded payment. That specific combination if perfect for fully automating bill payment:
- Fixed-Cost
- Automatically Paid
- Automatically Funded
Multiple Direct Deposits
One possible way of achieving fully automated payments is to split the direct deposit of your wages across two different accounts, assuming your employer allows you to do so. My employer, for example, allows each paycheck to be split across up to five different accents of my choice. Additionally, the split can be asymmetric, meaning a different amount can be sent to each account.
If you can split your direct deposit of wages across multiple accounts, you can auto-fund the fixed-cost, auto-paid bills by automatically depositing the money directly into the savings account. The remaining balance that is not used for fixed-cost, auto-paid bills should continue to go into the checking, as before.
Admittedly, since bills are generally due at the same time each month, this fully-automated payment technique is easier if you get paid twice a month instead of every two weeks. If you get paid every two weeks, the day-of-month on which you receive direct deposits relative to when the bills are due changes from month-to-month. But, if you get paid twice per month, then the direct deposits of the wages is the same from month-to-month relative to when the bills are due.
Seed Money in the Unvaulted Savings
Regardless of whether you get paid every two weeks or twice a month, you can add up your fixed-cost, auto-paid bills, divided the amount by two, and make that the amount per-paycheck that is deposited into the savings account. And, either way, you might need some "seed money" to get the process started to ensure you have enough funds in the savings account at the time the fully-automated bills are paid. The seed money is the amount of money you manually need to move from the unallocated vault into the unvaulted savings in order to get the fully automated payment process started.
Calculating the amount of see money that is necessary is beyond the scope of this article, although I may choose to write in entire article on it in the future. As a general rule, however, you should be safe if you are financially able to use an entire month's worth of fixed-cost, auto-paid bills as the seed money. Although you will continue to earn interest since it is in the savings, it is probably more than is actually need to use as seed money. Extra, unnecessary seed money is essentially taken out of circulation for other uses because it is no longer in a specific vault or unallocated vault. Over time, perhaps you can transfer some of unused seed money back into the unallocated vault as you watch the daily balance on the unvaulted funds.
