Automating your finances is a really great way to successfully stick to your financial goals because it allows you to preplan your bills and savings before you get a chance to forget or change your mind about what to pay or what to save. But first, why even automate your finances?
By automating your bill payments and savings you are basically putting your money on autopilot and all you will have to do is adjust things from time to time to ensure that you are staying on course with your money goals. In this blog post, I’m going to walk you through automating your finances by answering a few of the most common questions.
What aspect of my finances can I automate?
Pretty much every single aspect. You can automate your bill payments (e.g. your utilities, your loans, credit cards or other debt) as well as contributions to your savings and investment accounts (e.g. your emergency fund, short term-term savings, and long-term savings).
Where do I get started with automating my finances?
1. Automate your retirement contributions through your employer
Begin by automating your retirement contributions through your employer. If you are not sure how to do this call your payroll or HR department and have them automatically deduct a certain percentage of your pre-tax income each pay period towards your retirement savings.
If possible, try to max out your contributions, or at the minimum contribute enough to get your employer match (10% is a good guideline for what your minimum contribution should be regardless of if an employer match exists or not).
Take it a step further and have a certain percentage of your paycheck automatically sent to your emergency fund account and other savings accounts. Again this is something your payroll department or HR department would be able to help you set up if the option exists at your job.
Automating your retirement savings and other savings through your job is a no-brainer and it means that these savings transactions will be made before you get your final paycheck so you don’t have to worry about spending this money, forgetting to make a transfer or not having enough money to contribute to these accounts.
2. Create a budget based on the balance you get paid
After your retirement and savings deductions are made, you can use your budget to plan out your bills, debt and any other savings you’d like to make. Your budget will basically help you tell your money what to do. Automating your finances will ensure your money gets put to work doing to the various tasks you've designated.
3. Be aware of all your bill due dates
It’s very important that you understand when your bills are due in relation to when you get paid. This way you make sure you will have the funds available and avoid any fees due to insufficient funds. The last thing you want is to have an overdrawn account or pay bank fees as a result of automating your finances.
How do I set up automating my finances?
You can automate things a couple of ways -
Option 1: Sign up for automatic debits from the creditor or service provider you owe a bill to each month
This means that your creditor or service provider will automatically deduct their payment from your bank account. You will have to set this up with the creditor or service provider directly. This would also apply to any other savings you’d like to do - your savings institution would automatically debit your account.
Option 2: Setup bill pay with your bank
In this case, your bank will issue the payment to your creditor or service provider on your behalf. This is great if you have a service that does not have an automatic or online payment option. Or have one that still requires you to send in physical checks. You’ll have to provide your bank with account numbers and addresses of where you want the payments to go and allow enough time for your payments to get sent and received before the due dates.
What else should I keep in mind when it comes to automating my finances?
It’s very important that you are aware of your due dates and any changes to your bills. As good practice plan to check your account statements every month in advance of the automatic bill payment date. Set a calendar reminder a couple of times a month to review your bills and review your budget.
Automating your finances might take a little bit of time to set up but it’s totally worth it because once you have things all set up, you are less likely to slip up on your financial goals!