Automating Your Finances to Save More Money
Are you ready to save more cash with less effort? Then it’s time to talk automation.
There are four key benefits to automating your finances;
1. Saves time
2. Doesn’t require excessive will power
3. Reduces/eliminates negative habits, like spending money on stuff you don’t need
4. Reinforces positive habits, like consistently setting aside money for your goals
So if you’re serious about saving more money, here’s what you can do.
Get your accounts in order
First things first, you’ll need to make sure you have the right financial accounts.
This will include cash accounts, like your checking and savings accounts, as well as investment accounts for longer-term goals. These will fall under dedicated retirement accounts (401(k) and/or IRA) and taxable accounts (brokerage/robo-advisor).
You can even set up separate sub accounts for different goals. So for example, if you have a savings account, you can set up a sub-account for your emergency fund and a different sub-account for an upcoming vacation. This will help ensure you only use your money for its intended purposes.
Decide on your contribution amounts
Once your accounts are set up, you’ll have to decide how to divvy up your paycheck across each.
Most likely you’ll have multiple competing priorities. So you’ll want to figure out a way to divide your cash flow that makes sense for you.
This might mean a portion of your paycheck will go to your checking account that you’ll use for day-to-day expenses and paying bills. A portion will go to your savings account for your emergency fund. And a portion will go towards your investments. Keep in mind, the exact amounts won’t be set in stone. So you can always adjust them later if necessary.
Your employer may allow you to deposit money directly from your paycheck into several different accounts, or if not, you can set up automatic transfers through your bank.
You’ll want to make sure enough money is going into your checking account to cover your ongoing monthly expenses. But the real key to automating is that you’ll be regularly contributing money to your savings and your investments, taking away the temptation to spend it. Pay yourself first.
Monitor and increase your contributions over time
While automation will help you stay on track, it’s not about blindly putting your money on autopilot and never looking at it again.
You’ll want to monitor your accounts to make sure everything is working as you planned. And of course keep an eye out for unfamiliar or suspicious activity.
Over time, you’ll want to increase your contributions. Maybe you’re earning more and can afford it. Or maybe you’ve paid down some loans and have more disposable income. Whatever your situation, try to keep pushing yourself to save more. You may even be surprised at how much you can actually put away.
Automating your bills
It can also be helpful to automate your bills as a way to save time and to make sure you’re making your regularly scheduled payments (late payments can hurt your credit).
But it should go without saying, whenever money is leaving your bank account, you need to keep an eye on it. Errors can/do occur. You can get overcharged on a bill or charged twice, for example. And getting your money back can be a hassle. So stay on it.
Also, whenever you share account information with third parties like your cell phone carrier or cable provider, you open the door for potential issues like hacking and cyber crime. While these events are fairly rare, the risk is there, so be careful with your account info.
And if you do decide to set up automatic payments, be sure to build in a buffer to account for bills that vary from one month to the next. You don’t want to overdraw your account and get hit with a costly penalty.
Overall, automating your finances can be a great way to stay on top of your finances with less hassle and without relying on your willpower. The important thing is to get started sooner rather than later so you can set yourself up for ongoing success.