Automating your finances is a really great way to successfully stick to your budget and financial goals. If you tend to pay bills late or aren’t saving enough, automating your finances can help you better manage your money. If you’re new to the idea of pre-planning your finances, don’t worry. I’m going to walk you through how to automate your finances and answer some of the most frequently asked questions.
What does it mean to automate your finances?
When you automate your finances, you are setting up your bill payments and savings accounts to be paid every month automatically; you’re basically putting your money on autopilot.
By automating your finances, you can ensure you’re paying your bills on time and avoid costly late fees. Once set up, all you’ll have to do is adjust things from time to time to make sure everything is going according to plan. It's a great way to start organizing your finances.
What kind of accounts can you automate?
You can automate pretty much every single aspect of your finances. You can automate your bill payments:
- Rent or mortgage
- Credit cards
You can also automate contributions to your savings and investment accounts. For instance:
- 401k and other long-term savings
- Short-term savings
- Emergency fund
If it’s a bill or financial goal, chances are you can automate it.
How do you set up automating your finances?
There are a couple of ways you can automate your finances and simplify paying your bills and depositing to your savings accounts.
Option 1: Sign up for automatic debits from your creditor or service provider
This means that your creditor or service provider will automatically deduct their payment from your bank account. This happens periodically according to the payment schedule that you have with the creditor or service provider. For instance credit card companies, loan payments, utility companies, etc.
For example, your gas company may have its own automatic payment service. If your bill is due the 3rd of every month, you would opt-in or enroll for automatic payments through your account on their website.
Sometimes you can use a debit or credit card, but many times you’ll need to use your bank account information to avoid fees.
This could also apply to any savings you’d like to do — your savings institution would automatically debit your account and move the money to your savings account.
Option 2: Set up bill pay with your bank
In this case, your bank will issue the payment to your creditor or service provider on your behalf. Most major banks — like Chase, Bank of America, etc — and even your local banks and credit unions offer some sort of bill pay service.
This is great if you have a utility company or other vendor that does not have an automatic or online payment option or still requires you to send in paper checks.
When setting this up, you’ll have to provide your bank with the account numbers and addresses of where you want the payments to go. Keep in mind you’ll need to allow enough time for your payments to get sent and received before the due dates.
Option 3: Set up direct deposit with your employer (if you have the option)
Before setting up to automate your finances, it’s best to set up direct deposit. If your employer offers direct deposit, this is the easiest and most convenient way to get paid.
Your income is automatically deposited into your account, and you know exactly what days you will have access to your funds. You can also set up direct deposit to your savings and investment accounts via your employer. This makes automating your finances much easier.
Accounts to consider and tips to successfully automate your finances
Fortunately, it’s pretty easy to automate your finances and schedule recurring payments or deposits. If you’ve never tried to automate your finances before, here are four things to keep in mind. (You can also learn more about the different types of bank accounts).
1. Automate your retirement contributions through your employer
Begin by automating your retirement contributions through your employer. If you’re not sure how to do this, reach out to 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).
Automating your retirement savings through your job is a no-brainer. This will ensure you are saving for retirement automatically and not be tempted to spend the money instead.
2. Automate your emergency fund account & savings accounts
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.
You can alternatively set up automatic transfers with your bank into a savings account if you don't want to do it via your employer or if your employer doesn’t offer this as an option.
By automating your savings transactions, the deposits 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.
If you have inconsistent income, you can set reminders on your calendar to schedule transfers to savings when you know you’ll be making a deposit or receiving a confirmed payment.
You want to make sure to build all of this into your budget, and it’s also a great idea to keep your savings separate from the account where you have your daily transactions, so you don’t defeat the purpose of automating your savings!
3. 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. There are a variety of budget methods to choose from; be sure to pick a budget that best suits your financial situation and goals.
Your budget will basically help you tell your money what to do. Automating your finances will ensure your money gets put to work doing the various tasks you've designated.
4. 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.
One of the best ways to stay on top of your due dates is to create a budget calendar. This is a budget in calendar form and helps you remember all of your due dates and keeps your finances on track.
Some creditors and service providers may let you choose your payment date. You can simplify your bills by contacting them to see if you can change your due date to your pay date. This way you will prevent any money mishaps from lack of funds.
5. Review your bank account and bank statements often to stay on top of your transactions
When you automate your finances, you want to be aware of any changes to your bills. A good practice is to 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. Once you have things all set up, you’re less likely to slip up on your financial goals.
Remember the key steps when you automate your finances, such as setting up direct deposit, automating your investments and savings accounts, creating a budget, and scheduling your payments when you are paid.
Start automating your finances today to optimize your time, avoid late fees, and start working towards your financial success!