A couple years ago I was working for a senior manager that would not pay his electric bill regularly. It wasn’t because he couldn’t afford it, from what I could gather he had his financial house in relatively good order. His reasoning was because “why pay early when they aren’t going to penalize me or shut off my service? I’d rather keep my money as long as possible. Gotta manage your float!” From what I’d gather he’d regularly pay his electric bill at least a month late, especially in the winter time when electric companies in the northeast are not allowed to cut your power due to failure to pay.
Float, by definition, is when the bank will credit your account for a deposited check even though that check has not cleared. So in essence it’s not your money yet, but you have access to it, and it is counted twice as the payer still has that money in their bank account as well.
This conversation spiraled into another conversation where two other coworkers explained how they pay off their credit card weekly and sometimes daily, because they can’t stand “owing money when they just have it sitting in their checking account.” To be honest, I was baffled when I heard this as I set my credit card bill to be paid ON the due date, always.
When you pay your credit card early or any bills for that matter, in most cases, you are paying off a 0% loan early. I would rather use the money to fund my Roth IRA sooner, pay down a mortgage, pay down student loan debt, or just leave it in my checking account in case an emergency arose before it was due.
I think it all has to do with the person’s financial mentality. Where some people rush to pay down student loan debt at 1.9% or less, I would milk that payment out as long as possible and deploy that capital to investments.
But it’s easier said than done. I am actually running into this issue right now where my only student loans left are at 3% and I can’t decide if they’re worth paying off in advance or not. I have the funds to pay them all off now, but I don’t think it’s worth it with the low rates. So therefore I settled in the middle and pay extra over the minimum due even though I know over the long term the broader stock market has returned greater than 3%. Plus I do not receive the student loan interest deduction anymore. What would you do if you were in my situation? At the current pace I pay them, they will be paid off in less than 20 months.
Help me out folks. Which group do you fall in?
1) Do you manage your float to your full advantage?
2) Do you pay off your bills ASAP?
3) Do you fall somewhere in the middle?