Warren Buffet once said that investing is simple, but not easy. He could have said the same about most of personal finance. Knowing what we should do with your money is often much easier than actually doing it. We know we should budget, but conveniently forget to make time to review our budget. We know we should save for retirement, but never get around to making our monthly investment. And that electric bill has been sitting on the kitchen table for 3 weeks for no good reason. In the meantime, we spend way too much time worrying about the stuff we should be doing, but aren’t. These are things that could easily be solved by automating your finances.
Instead of perpetually spending time and mental energy worrying about routine finances, invest a little time to create a financial plan that will run on its own. Set your bills and other fixed transactions to be paid automatically shortly after payday. Then forget about your plan so you can live the rest of your life.
Automating Your Bills- Autopay
Almost any business that bills on a regular basis offers an option to collect your bill automatically. They’ll keep your credit card or bank information on file and automatically process your payment each month. Even our local mom and pop trash collection service offers bill auto-pay. Of course, using these services requires a certain degree of trust. But so does sending a check via USPS. Furthermore, almost all credit cards offer complete fraud protection, so you are not on the hook for any fraudulent purchases. You do have to catch the fraudulent charges on your card bill and file a dispute, so always review all the charges on your credit card bill (OK, so don’t completely forget about your finances).
Because debit cards and electronic bank transfers don’t offer the same fraud protection as credit cards, I strongly recommend using credit cards for auto-pay whenever possible. If you’ve sworn off credit cards to help you stick to your budget, consider making an exception for this. You won’t be tempted to overpay a bill just because you’re using plastic. If you want, sign up for auto-pay and then put your card in a cup of water and stick it in the freezer (redneck credit freeze). This way you won’t be tempted to use it on purchases. As a cherry on top, you can earn cash back for paying your bill with the credit card. Of course, you’ll want to also have your credit card automatically paid each month (in full) from your bank account.
Some banks offer bill pay services. Instead of businesses initiating the charge, you tell the bank to initiate the payment. The advantage of this is that it avoids giving your card number out to lots of businesses. As with auto-pay, you can set recurring bills to be paid automatically each month. However, with bill pay, you must be the one that specifies the amount paid. Bills that change from month to month, such as your utility bill, need to be initiated by you each month so that the correct amount is paid. So while using a bank’s bill pay services does eliminate envelopes and stamps (at least on your part), it doesn’t fully automate your bill payments. Some banks also charge a fee for their bill pay service.
If possible, schedule your bill payments soon after payday to prevent overdraft issues. If you can’t arrange this, you have one more reason to stick to your budget religiously.
Automating Your Savings
You likely have several savings goals, including Retirement Savings and an Emergency Fund. If you don’t automate your savings, you will find reasons to spend the money elsewhere and will end up under-saving for your goals. Keep your savings in a different account from your spending accounts and set up regular transfers into those savings accounts. This applies to vehicle savings, emergency savings, retirement savings, etc. If it helps you to keep separate savings accounts for separate goals, just make sure you’re not getting charged for each account. Actually, you shouldn’t be getting charged for any accounts, but that’s another post. Be careful to not let too many accounts become an entirely different headache.
Retirement savings can sometimes be a little trickier. If you’re using your employer’s 401(k), your savings are automatic by default. If you invest in an IRA, make sure that your automatic contributions to the account also are automatically invested. Otherwise your contributions will just languish in the account as cash.
Automating Your Income
You won’t dread depositing your paycheck the same way you might stress about paying bills. Nonetheless, if your employer offers direct deposit, use it. At the very least, this saves the extra step of depositing it. If you have a tighter budget, directly depositing your paycheck also help prevent overdrafts by ensuring your money is in your account when you need it.
Truly automating your income is developing a passive income stream that requires no further effort on your part. Most people develop this in their retirement accounts, although you can work on one in a smaller time frame if you’re real ambitious.
Automate Your Spending
Unless you are living in a very unique situation, you probably can’t automate all your spending. Instead, you need to develop habits that help you stay within your budget. Tailor these habits to your strengths and weaknesses. You might withdraw a set amount of cash for your ‘fun’ spending each month or week. You could regularly buy a grocery store gift card for your food budget. If you already are a conservative/self-disciplined spender, you might be just fine using credit cards and tracking your spending to ensure that you stay under budget. However, if you find yourself consistently going over budget, be strong enough to recognize when you need to make a change. Experiment with different ways of sticking to a budget til you find one that works. Perhaps all it will take is a few months of recording and totaling every expense.
For more on setting up an automated budget, check out my post The Super-Easy Barebones Budget.
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- While I do strive to only write accurate information and dispense valuable advice, I am not a licensed financial adviser. All information is based solely on my personal experience and personal research and should be treated as such. Find out more.