The Importance of Standing Orders

In order to save money and manage your budget. It is important to understand the importance of standing orders. But beware ! They should be used in moderation 🧐

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Regarding a part of the article ”how to organize budget with a banking app”. I wrote about the importance of creating standing orders. But after reading the article. I realized that I had to write a follow-up article to explore this important topic in more depth 😉

What is a standing order?

👉 This is a payment order that you make from your banking application.

In broad terms, it's similar to a one-off payment. The difference is that you choose to make the payment in a repeated and automated manner.. Usually once a month 📆.

How to use a standing order?

Standing orders should be used according to each person's needs. But as a general rule, they are useful mainly for:

Pay bills automatically
Create sub-accounts and add money in an automated way
Adding money to a savings account
Make a payment to invest

Why is it important to create standing orders?

For several reasons, such as:

Time saved ⏱

If you have a monthly bill with a regular amount (such as your rent). You avoid wasting time to complete this task each month.

In fact, with a standing order, you only need to create this payment once, in less than 5 minutes. Then, every month, your expense will be paid automatically.

Budget organization 📋

By creating standing orders for your invoices, you are automatically able to organize your budget. 😉.

This will allow you to understand some unnecessary expenses that you make.

Avoid spending temptations 💳

If you make a standing order for each expense and savings (or investment). You will only have money left in your account”free to spend”. As a result, you reduce the risk of getting into debt.

Anticipate expenses 📉

In my situation, from my banking application, I created some ”virtual subaccounts” in order to anticipate some expenses.

For example, for the obligatory annual TV tax¹ (which I never watch by the way 🤔).

I divided the annual amount by 12 months. So, each month I add 1/12 of the total tax amount to a sub-account”TV tax”. Therefore, when the bill arrives once a year. I have all the money in my virtual account.

Avoid couple discussions 👫

As a couple, we can quickly have discussions about joint expenses.

When a bill arrives, if one of the spouses has not anticipated an expense, the couple must necessarily make a financial compromise which is not pleasant for anyone 😑.

On the other hand, by creating a joint standing order for the main bills, the couple's expenses are anticipated 😉

👉 To summarize, here are 5 benefits of creating and understanding the importance of standing orders. 😊

Save time on monthly bills
Better budget organization
Avoid some spending temptations
Anticipate expenses
Avoiding certain couple discussions

On the other hand, despite these good reasons for creating standing orders, It should be noted that standing orders are only used for the most part ⚠❗

The importance of using standing orders only for essentials

While standing monthly transfers are convenient, they are not always beneficial.

For what ?

👉 Because if we use standing orders for frivolous expenses. We get used to this money being spent without realizing it. For example:

Subscription not used

For example, if I have a monthly standing order for a Sports TV subscription that I never watch. In reality, there is little chance of me spending this amount.

At first glance, we say to ourselves that this is “only” 13 CHF lost per month. Yes, but it’s also… 156 CHF spent per year. Which give… 1,560 CHF in 10 years 😨.

For… a subscription that I never watch.

Adding too much money to a standing order

Another example of misuse of a standing order. This is when you add too much money to a subaccount.

Let me explain, if I have a leisure sub-account where I add 1,500 CHF per month. The most likely thing is that I will get used to spending 1,500 CHF every month.

While currently, my hobbies cost me around 500 CHF per month. And I don't feel the lack of spending more 🤗.

In reality, It's not because I add 3 times more money that my leisure activities will be 3 times better. That is to say, I will not feel 3 times happier if I spend 3 times as much.

I think you understand the importance of standing orders only for essential expenses! 😄

⚠ Otherwise, standing orders will be more harmful than beneficial financially ❗❕

How to organize with standing orders?

➡️ The easiest way is to create a standing order for each essential expense the day after your paycheck! 📆

So, on the second day after your salary, there will only be money left ”free to spend” 😎

And as I have already explained in a few articles. It is not because there is money left in an account that you have to spend it. You might as well use it for an important personal project 💲😉

The ideal amount to add for each sub-account?

As we read earlier, the ideal is to add a good amount for each sub-account and expense category. That is, neither adding too much money relative to expenses, nor adding too little money relative to expenses.

On the other hand, it is important to understand that defining the ideal amount per account takes time. Indeed, you must regularly analyze your personal finances and adjust standing orders to optimize the amount to be added per bank account.

In addition, note that over time, bills change and there are financial unforeseen events.

Therefore, the ideal amount to add per account will take time and will have to be modified according to each person's desires and expenses. !

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