Money Angles

By Andrew Tobias

Here's a way to earn 10% or 20% on tiny sums: pay small monthly bills two or three at a time. This wouldn't be worth discussing -- I can tell by the dignified way you carry yourself that tiny sums mean nothing to you -- except that it will save you time as well. That's the real point here. Still, it's nice to know the numbers work too.

Take your $20 gas bill. Paying two months at once, $40 instead of $20, ties . up an extra $20 but saves a stamp -- 29 cents -- and the trouble of having to pay the bill next month. Twenty-nine cents is a "return" of 1.45% on a one- month "investment" of $20, or nearly 19% a year compounded.

Of course, not all your bills are the same each month. But even if the amount varies, all but the most amateur of creditors will have no trouble applying your overpayment to future balances. Just note in the memo: "$23.15 for April, plus $50 on account." Your next bill will reflect a "credit -- do not pay."

Not only that, you'll have the cleanest credit record in town. "How's his payment history?" one computer may ask another. "He pays early!" the other may flash back. "Aw, c'mon," the first computer will say. "No, really! Here -- look!" Whereupon the first computer will look over the second computer's shoulder and sniff its perfume, and airline reservations clerks around the country will frown and say, "Sorry, my system just went down." All because of you.

The table that follows shows the "returns" you earn on each early payment, taking into account only the postal savings. If you'd also save on the cost of checks or envelopes -- let alone the hefty per-check fee some banks charge if you fall below their minimum balance -- so much the better.

But even just saving the 29 cents, look what happens if, say, you pay four $10 monthly bills in a lump -- the $10 you owe now, plus three additional early payments. As the table shows, on that first early payment, the $10 you tie up is "earning" about a 36% annualized rate of return. The second is earning about 18%, and the third -- $10 tied up for three months to save 29 cents in postage -- is earning an annualized 12%.

Obviously, the smaller the bill, the more sense it makes to pay early. Lumping four $10 monthly bills makes a lot more sense than lumping four mortgage payments. But as the table shows, even on a $60 monthly bill, doubling up cuts the chore in half and "earns" you 6%.

Note that:

-- These returns are actually understated. For simplicity, they don't take into effect compounding. (But no matter how high your rate of return in percentage terms, it's still only 29 cents, so I guess there's no point getting carried away.)

-- The returns are "tax free" (unless you're a profitable business, in which case the savings add to your profit, which is taxed).

-- If you already pay 20% interest on everything -- your life's a revolving charge card -- then borrowing more to "earn" 18% in saved postage makes no sense.

Of course, you wouldn't want to pay in advance if you thought the gas company might go broke next month, or if it didn't have the capability to credit you for the overpayment -- or if you simply hate the gas company. Otherwise it's a good deal for everybody: it saves you time. It's less work for your bank (fewer checks to process). It's thrilling to your creditors. And it's easy on the environment: half as many checks to manufacture, transport and dispose of.

In short: a postage stamp-size idea, but first class.

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