Bills!!! Those unwelcome digital (or paper if we’re old school) reminders of our financial obligations… They ruthlessly stalk us on a monthly (or annual) basis, some for necessities and others being constant reminders of decisions and choices we made that seemed like good ideas at the time – memberships / subscriptions / purchases. Now we face a strategic conundrum! Should we tackle these foes month by month, like bite-sized battles in a long-term siege, or unleash an annual financial attack and leave them flattened in a single blow? In other words – is it better to pay bills monthly or annually?
In this post, we explore why a monthly ‘siege’ approach works best for some of us in some circumstances, and when that annual financial attack is probably a better option.
Bite-Sized Battle Vs Annual Financial Attack: Should We Pay Our Bills Monthly Or Annually?
Deciding whether to wage a monthly or annual battle on bills can be more significant than simply determining how often we want to part with our hard earned dollars. What we decide can in fact have long-term implications for our finances and overall peace of mind.
Paying bills monthly is more budget-friendly and often easier financially but does come with the stress of ensuring the funds are available each month to cover the payment. We also usually end up paying more overall because of frequency loadings, losing discounts, and sometimes because of interest and monthly administration fees.
Paying bills annually provides the satisfaction of knowing we don’t have to worry about them again for a year, a big consideration. But – it may cause some short-term financial pain unless we’ve been budgeting for it since the last payment, or have a financial safety net.
Therefore, whether it’s better to pay your bills monthly or annually depends – on your financial circumstances; on which one best allows you to balance convenience and financial stability; and even on the terms offered by the service providers. In some cases, late payments also cancel the option to pay monthly, meaning you then have to pay the entire balance straight away, and that can be very stressful. Especially if you’re on a tight budget!
Some Key Considerations Around Deciding Whether To Pay Bills Monthly Or Annually
What do you need to consider when making a decision about paying bills monthly or annually?
Key Consideration #1: Income
Income (amount and frequency) is obviously a key consideration that usually dictates whether bills are paid monthly or annually. If you have a reliable, and adequate, weekly/fortnightly/monthly income and can replenish your funds quickly after a large upfront expense, paying bills annually is feasible, and even preferable in some cases. It gives you better ongoing financial flexibility because you’re not worrying about continual monthly payments.
Even so, you are paying out potentially large chunks of cash in single transactions so it’s wise to budget your cash flow to absorb them, or make sure you have a financial cushion, so you can ‘recover’ quickly. That way, should you have an unexpected expense you’ll be in a better position financially to handle it.
If you don’t have a predictable, reliable income (which is often the case for casual workers and self-employed people) committing to large upfront annual payments may be an unjustifiable financial risk unless you have a financial cushion. Without such a cushion, paying bills monthly makes more sense because it
- Spreads the financial load out over the billing period,
- Allows you to budget for the ongoing expense; and
- Provides better financial stability.
Key Consideration #2: Type Of Bill
The type of bill being paid can also be a determining factor in whether it should be paid monthly or annually.
Discretionary expenses, like optional memberships, are probably best paid monthly, particularly if you only use them sporadically. This provides the option of cancelling at any time.
Fixed expenses – insurance, council rates, vehicle registrations, land tax etc – generally attract interest and/or administration fees if paid monthly or via instalments so you’ll save money if you can pay them annually.
Key Consideration #3: Saving Opportunities
Another consideration could be potential interest earning/saving opportunities for the money. Rather than spending a big chunk of cash paying bills annually, it may make more financial sense, and cents, to save it instead or offset debt, and use the interest/ savings to help pay the bills monthly.
Key Consideration #4: Personal Preference
Personal preference also comes into the equation. If you hate paying interest and administration fees, and have a financial safety net, paying bills annually where possible will avoid these. It may also provide potential opportunities for discounts.
If you prefer a more even cash flow distribution, spreading expenses like bills evenly over the course of the billing period is going to suit you better.
With these points in mind, what are some of the implications, and pros and cons, for paying bills monthly vs annually?
Paying Your Bills Monthly (Or By Instalments) – The Pros
There’s no doubt that for many of us, paying bills monthly has become ‘the norm’ even if we do have a steady, regular income, simply because it has some distinct advantages. Notably, it can:
Provide a greater sense of control and flexibility over cash flow:
By opting to pay bills monthly, we spend ‘bite-sized’ amounts of cash rather than large chunks in a single transaction. This reduces the risk of financial strain, and allows for a better balance between convenience and financial stability.
Make it easier to budget other expenses around the monthly payment:
Paying monthly, or by instalments, can make budgeting and managing other financial commitments and cash flow easier as it distributes the smaller expense evenly over the course of the billing period.
Have less overall financial impact:
Budgeting for smaller regular payments can help us maintain a financial safety net to lessen the impact of sudden financial setbacks, and put less strain on our budget and finances.
Allow discrepancies to be picked up and fixed quickly:
Monthly billing lets us review statements regularly, spot unauthorised charges, errors, and discrepancies, and get them corrected before the next bill. This minimises their financial impact, and reduces the potential for bigger issues down the track.
Offer more rewards:
Paying bills monthly = more transactions, which means we can take advantage of any discounts and rewards (Flybuys etc) that come with regular transactions on eligible cards.
Paying Your Bills Monthly (Or By Instalments) – The Cons
They say convenience usually comes at a cost and when it comes to paying bills monthly rather than annually, this is very often the case. Literally as well as figuratively…
In choosing to pay bills monthly, we invariably run up against:
Additional fees and charges:
Many companies charge for the convenience of paying monthly, quarterly, or by instalments. This may be in the form of interest on the unpaid balance and/or monthly administration fees. If you don’t pay by the due date, you’re often charged more interest again, or may lose the option to continue paying monthly or by instalments.
A good example is your car registration; if you pay this quarterly instead of annually, it costs anywhere from $10 or more each quarter vs paying it annually.
Similarly, most local councils offer quarterly, bi-annual, and annual options for paying rates BUT charge interest, and an administration fee, on the instalment options. You may also lose the option to pay by instalments if you don’t pay within a certain timeframe from the due date.
Subscriptions and memberships are another example where it often costs at least a few dollars more each month if you pay monthly rather than annually.
The inconvenience of ongoing due dates and transactions:
Whilst setting up direct debits for ongoing monthly or periodical payments has advantages, and you may not be able to opt for monthly payments without one, there are also valid reasons for avoiding them… Like administrative headaches if the money to cover the debit is late going into the account for some reason, or a lack of flexibility if you have a sudden unexpected expense!
However, not setting up a direct debit means having to a) remember to pay it each month and b) process the payment manually.
Paying Your Bills Annually – The Pros
Similarly, adopting an annual approach to bills, or some of them at least, also has advantages by way of:
Potential cost savings:
Paying annually can save you money because it doesn’t attract monthly administration fees, interest on the unpaid balance, or bank fees on additional transactions. Companies also often offer a discount or incentive for paying the entire amount at once, although the ‘discount’ may simply be the normal amount without monthly fees and interest added! Nevertheless, it still saves you money.
Do your sums and work out whether the amount you may save by paying annually is cost-effective, and potentially worth risking some temporary financial stress.
Less administrative and budgeting hassle:
Paying one amount annually streamlines financial record keeping because you only have to account for the payment once a year. It also does away with the hassle of budgeting around constant due dates.
Peace of mind:
Ongoing monthly financial obligations can create ongoing stress. Knowing a bill has been paid for the entire year and we don’t have to worry about it for another 12 months gives peace of mind.
Error spotting:
Sometimes discrepancies, unauthorised charges, and errors are small enough to slip under the radar in monthly payments but can be spotted as larger amounts in an annual payment.
Paying Your Bills Annually – The Cons
The biggest disadvantage to paying bills annually, particularly large ones, is that it can leave you financially strapped for cash if you haven’t budgeted for it, don’t have a financial cushion, or have an unexpected financial setback before you can replenish your funds. Therefore – if you do choose to pay annually, make sure you still have enough money to live on afterwards, and pay your other expenses, until you can (preferably quickly) replace the money.
Considerations For Choosing The Right Payment Options
Evaluate your financial stability, factoring in the impact of either approach on your savings and emergency funds.
Consider paying your bills monthly if you prefer to play it safe financially and spread your expenses to lessen the financial burden, or don’t have much by way of a financial cushion as a safety net. At the end of the day, being financially secure is important too.
If you can afford to pay bills annually, which means you:
- are able to replace the funds quickly,
- have a financial safety net; and
- have budgeted to part with large chunks of cash in single payments
and you don’t like paying more than you have to and/or like to take advantage of discounts, then doing so can make a lot of sense financially and convenience-wise.
