What Does it Mean to Automate Your Finances?
January 6, 2021
Thinking about your finances can be a daunting task. Paying bills, keeping track of your spending, and sorting through credit card statements can take several hours a week. Fortunately, we live in an era of technology that can assist us with the mundane realities of everyday life. One way you can save yourself the time and stress involved when dealing with your finances is by automating it! Automating your finances is a great way to stick to a budget and financial goals. If you keep tapping into your savings from overspending then you might be overwhelmed with your spending habits. Automating your finances can help you manage your money going in and coming out of accounts.
What kind of accounts can you automate?
Here we’re referring to automating your finances by setting up automatic payments to be withdrawn from your account depending on your schedule. It’s like putting your money on autopilot.
There are plenty of ways to automate each aspect of your finances such as:
- Bills (rent, car payment, paying down debt)
- Savings account
- Investment accounts
There’s a good chance you can automate some or all of the above. Check with your bank to see if you can set up automatic plans.
Accounts and tips to consider automating
Once you’ve got your accounts set up, it’s important to check back and make sure everything is running smoothly and right on schedule. If you’re ready to consider automating a portion of your finances, here are a few things to consider.
1. Automate retirement contributions
If your employer offers a 401(k) plan, consider automating your retirement contributions with what you’re comfortable with. When you start a new job, your HR department or a financial adviser can help set this up for you. Be sure to consider all your options before committing to a plan. Once you’ve got your 401(k) set up you can set up recurring contributions that get deducted from each paycheck. If your employer offers to match your contributions, try to max out as much as possible to take advantage of this opportunity.
With an automated 401(k), you are effectively paying your future self first – with money that otherwise would have been spent. Long term that can potentially add up to big savings. Plus the earlier you start, the better chance you have at growing your 401(k).
2. Automate your savings and emergency fund
You’ll never know when you’re going to get hit with a surprise bill. Establishing a personal budget that sets aside 10% of your gross income every paycheck is a way of prioritizing saving. Building up your safety cushion through automated withdrawals can help you in case of an emergency. Your employer can help you set aside a certain percentage of your paycheck that gets automatically deposited into one of your savings accounts. If your paychecks vary each month then set a reminder for yourself to make a deposit to your savings account.
The 10% savings rule is just a guideline for how much of your paycheck you should set aside for retirement. If you have no idea how much to save, it gives you a starting point, but it isn't a one-size-fits-all rule.
3. Be aware of your bill due dates
The last thing you want to do is overdraft your account and pay extra fees. It’s important to understand what days your bills are due in relation to the days you get paid. An easy way to keep track of your bills is by creating a budget calendar. Label each day of the month with the type of bill and the amount due. Set a reminder for yourself a few days beforehand to ensure your bills are to be paid on time. Don’t forget to calendar your paydays too!
Automating your finances will take a lot of work up front, but once everything is on schedule it’ll be a virtually effortless experience. Avoid late payments, save for your future, and achieve financial success with one step at a time!