Picture this: It’s January 1st and you tell yourself that this is the year you’re finally going to get your finances organized. You start researching how to invest for retirement, different methods of budgeting, and spend hours each day making transfers, paying bills, and keeping track of your spending…
But, within a few short weeks things start to fall through the cracks. All these manual tasks start to become mundane, not fun, and a bit burdensome. You might get so lax that bills don’t get paid and you find yourself completely blowing your budget on takeout and impulse purchases.
We’ve all been here. We might plan to make money improvements on a consistent basis… But when we depend on sheer willpower to get things done we’re setting ourselves up for failure. And it’s not necessarily because we’re lazy, or forgetful. It’s because we are setting up a recurring fight with our own psychological inadequacies.
The answer is to use automation to your advantage! Using systems and technology we can streamline tedious tasks and set ourselves up for financial success. Here are some of the easiest ways to automate your finances, and why it is so incredibly helpful…
The Benefits of Automating Your Finances
Automating our finances can have massive benefits in our daily lives. It can help us to invest consistently, pay our bills on time, eliminate decision fatigue, and save precious hours every month.
Automation increases our mental bandwidth. Every little money decision takes up precious minutes of our day, which can really add up. Automation helps us to crush our money game while thinking about it less. This gives you more mental freedom to daydream and be creative!
Save more of your money. Relying on automation can be way more effective than using willpower. You won’t have to be as disciplined to save more of your hard earned cash!
Save money on fees and interest. Automation can help you to stay on top of your bills and credit card payments. By never missing a payment again you’ll save money on fees and interest that you’d otherwise accrue.
Eliminates temptation. Automation can help you to reduce your temptation to spend. By automating your savings, your funds will be out of your checking account before you’ve even had a chance to spend them.
Helps you develop good financial habits. When you start consistently putting money into savings, tackling debt, and getting a few wins under your belt, it starts to positively change how you view yourself. You’re now much more likely to envision yourself as a great saver and investor!
This seemingly small tweak to your self-perception can help you to further crush your financial goals. As James Clear discusses in his book, Atomic Habits, your identity and habits are closely linked. Small wins build your confidence and help you to see yourself as someone who is good with their finances, which in turn causes you to develop even better money habits. It’s a virtuous cycle!
Potential Downfalls of Automating Your Finances:
After reading about the massive benefits automation can have on your finances, you’re probably thinking it’s a total money game changer! And while it can have a tremendously positive impact on your life, there are a few potential pitfalls to consider before you set it up.
Automation can definitely clear up mental space in your day to day life. But it’s important not to take an “out of sight, out of mind” approach to your finances. We still need to think about how we handle our money, be aware of our spending, and check-in to make sure that we continue to live in alignment with our bigger picture goals. Think of it like putting your car in cruise control. Even though your car is set to drive at a consistent speed, you still need to keep your eyes on the road ahead of you.
Another potential risk of automating your finances is accidentally overdrafting your checking account, and having to pay the nasty fees that come with it. Be sure to keep a cash cushion or slush fund in your account to prevent this from happening.
Ways to Automate Your Finances
So now that you have a good understanding of what automation is and what it isn’t, here’s how to automate your finances and put your money on cruise control.
1. Set Up Direct Deposit
If you’re still receiving paper checks from your employer, save yourself time every month by setting up direct deposit. You eliminate the risk of losing or misplacing a check, and will save the time it takes you to either go to the bank, or complete a mobile deposit.
Also if you pay your rent by check (80% of people apparently still do), consider setting up auto-pay to your landlord. Or, check out the Bilt Credit Card platform that gives you rewards for paying rent via a mobile app! This one in particular can help you avoid those pesky late fees.
2. Schedule Automatic Credit Card Payments
Another great way to automate your finances is to link your bank account to your credit cards and scheduling automatic payments. Remember that you still need to pay attention to what you’re putting on there and how much you’re spending. Just because that payment is automated doesn’t mean you can spend with reckless abandon!
Automating credit card payments can make sure you won’t pay interest or late payment fees. But if you use it as an excuse to overspend, you’re not doing your finances any good. With credit cards, it’s always a good idea to take a look at your statements during a monthly money check-in.
3. Use Budgeting and Expense Tracking Apps
My parents used a notebook and pencil to budget each week. They would write down every transaction they made, and spend hours reconciling their expenses and account balances each month.
These days, modern apps like Mint.com, Personal Capital, and YNAB do all of this for you! They connect to your bank accounts, credit cards and investment accounts and tally up all your transactions each month. The data can then be sorted and reconciled easily depending on how you like to budget.
Digital budgeting and expense tracking is a big eye opener. These apps also expose spending trends and bad financial habits. You can use these reminders as motivation to make positive financial changes in your life.
4. Put Your Utility Bills on Autopay
Putting your utility bills on autopay is a great way to save yourself a decent chunk of time every month. Similar to credit cards, make sure that you’re not using autopay as a way to avoid the pain of seeing the amount you’re spending on gas, water and electricity.
This might sound weird, but we want you to look your bills in the face, and feel the effects of your energy usage habits. Doing so will challenge you to use change your habits (like putting on a jacket before cranking up the heat) so that you can spend less!
While you’re here, check out these posts to save money on utilities:
- How to save money on your water bill
- Ways to lower your monthly gas bill
- Ways to save money on electricity
5. Get Your Bill Dates to Sync Up!
If you worry about overspending using autopay, try getting your bill dates to sync up so that you can sit down once a month to pay them all. Call your utility and credit card companies and ask them if you can move your bill date so that they all line up.
Pro tip: For some services (like insurance) you can potentially pay in bulk, or pre-pay for a year of service in advance. Some providers even offer a discount for paying upfront – like our favorite cell carrier Mint Mobile. This means you get cheaper cell phone service, as well as not have to worry about bills for 12 months!
6. Set Up Direct Transfers to Savings
Every time your paycheck hits your checking account, set up an automatic transfer into a savings account you don’t touch. This way, you won’t be tempted to spend it!
Bonus points if it’s a high yield savings account with an online bank. You can typically get an account with a 3-4% APY, which can help hedge those savings against the ravages of inflation.
7. Pay Yourself First
When your check first hits your checking account, you’re probably not thinking about the effect that money could have on your lifestyle decades to come. But it’s important to sock away some money from every paycheck for the future, namely for retirement. This is why we always recommend paying yourself first – automatically!
If you have a workplace sponsored retirement account, like a 401k, set a percentage of your paycheck to be automatically contributed. That way, your money won’t even hit your checking account. This removes the obstacle of having to decide each month how much you will contribute. You’ll save time on actually making the contributions AND avoid the temptation to spend that money instead. It’s a win, win!
This is especially important if you have an employer match. If an employer is willing to give you money towards your retirement, it’s important to take advantage of it. This is one of the rare cases where the promise of “free money” isn’t a scam!
You can also set it up so that your contribution level will automatically increase every year or every time you get a raise. It’s important to up those contribution levels in tandem with your raises. This avoids that nasty lifestyle creep, and you’ll continue to crush your financial goals!
If you are self-employed or don’t have access to a work sponsored retirement account, then open up a Traditional or Roth IRA. Schedule a monthly transfer from your checking account into it!
8. Buy Target Date Funds In Your Retirement Account
When investing, it’s hard to go wrong with an S&P 500 or Total Stock Market Index Fund. But if you want to simplify your investing process even further, you could opt to go with “target date funds” instead. Another great choice – and definitely a set it and forget it solution.
A target date fund is an investment option based on your desired retirement date. They automatically rebalance and change the allocation of your investments over time. Typically this means moving towards a more conservative mix of stocks/bonds as you get older.
Because of this, they can be a great option for people who don’t want to think about investing – or worry about rebalancing! Just make sure to go with a low cost provider like Vanguard or Fidelity.
What To Do With Your Extra Time…
Hopefully we’ve convinced you that automating your finances can have some serious benefits when it comes to getting after your money goals.
While it won’t save you from ever having to think about money ever again, it will help you to work smarter, not harder. When you automate your finances, it allows you to spend more time thinking about the bigger picture. And now you can spend more time living in the moment, and enjoying the freedom to daydream and think creatively!
Photo by UX Indonesia on Unsplash
