There’s a lot of discussion about using tools and simplification to increase your wealth, but just what does it mean to automate your finances?
What Does it Mean to Automate Your Finances?
To automate your finances, is to create a system of money management actions that remove the human element, error, and are set to take place without intervention. That’s a little technical so let’s simplify it a little.
Setting up a system for paying bills within your bank ensures that earners are able to save money, and pay bills. The simplicity of this process is that it is often a one-time occurrence to setup an automation system, usually with just a few financial partners.
Instead of writing checks or paying each individual creditor on a monthly basis, earners automate those payments and instead focus on a single focal point to concentrate their efforts.
Simple Solutions to Save Money and Time
Most earners already automate some of their accounts. Nearly every employer offers direct deposit wage payment.
Depositing a paycheck without direct deposit can be time consuming. Direct payments allows businesses to avoid printing a check and earners bringing it into the bank to deposit or cash and waiting for the funds to clear. Wages are automatically deposited into the earner’s bank account.
The automated process of depositing funds is a good model for creating a personal finance system. Direct deposit earners don’t worry about whether their money will be deposited into their account, and they generally expect the same amount of money each week. They don’t have to think about money and this helps them avoid money anxiety, stress, and keeps them out of bad situations.
Easy Accounts to Automate
Automating financial accounts is quick and easy. Here are some quick financial relationships to set up automatically:
- Set up direct deposit
- Cell phone/internet/cable bill payments
- Credit card minimum payments
- Student loans
- Auto loans
- Rent/mortgage payments
- Savings accounts
- Retirement accounts
The goal when first automating finances is to make sure all payments are covered, no late fees are paid, and that the automation is hands-off. By routing your direct deposit income not only to your checking account but also savings and retirement accounts, the money is more likely to stay in those accounts.
Earners will find that they tend to adjust to whatever is in their checking account. For example, saving an extra $300/month might seem hard to do at first, but if savers find just $1/day to start in cutting costs they will soon find it easier to put away $2/day, then $3 and eventually $10. By stepping up their approach in an automated fashion, most savers will learn that it’s not as hard to adjust as they once thought.
Whether savers transfer money into retirement savings accounts or general savings, they are quickly more financially secure than most Americans. In the US, about 40% of the country cannot cover a $400 emergency even when borrowing from friends and family. By automating savings of even just $1.10/day, savers can quickly move to the top 60% of the country in just one year.
Like automating wages, when automating bills earners are less likely to pay late, miss a payment, short a bill payment or enter into collections. All of those common issues are expensive and only further harm earners.
Successfully Automating Your Finances
In the previous section, we discussed automating payments, and savings but there’s an important point to address. Specifically for credit cards, we mentioned automating the minimum payment. This is so that earners can prioritize high interest debt by taking an active role in paying it down without neglecting the minimum payments on other loans and incurring fees.
By limiting the amount of work and thinking an earner has to do with respect to their money, they can focus on paying down one critical debt at a time and ultimately pay down debt faster with the debt snowball method.
Almost every bank and credit union will assist with automating bill payments, and splitting up income between accounts online. However, budgeting remains important but there’s a trick to saving even more.
Most earners wouldn’t be able to save an entire paycheck in a given year let alone two without making substantial lifestyle changes. However, there are 52 weeks in a year resulting in 26 bi-weekly paychecks. Most earners consider their bills monthly but with 12 months in a year that would only require 24 paychecks, not 26.
For those that operate on a monthly basis, but pay loans like car payments, student loans, or mortgages on a bi-weekly basis, they will actually make an extra monthly payment to each of those accounts and have savings left over.
Bill payments can often also be arranged to fall on a certain day of the month. You may want to set all of your recurring payments for the 14th and 28th each month to avoid any surprises and simplify your personal accounting. Some creditors make this feature available online, others will do it over the phone, but few will deny a request to move a payment due date to a particular day of the customer’s choosing.
Automating your finances is an important part of improving your long term personal financial position and meeting financial goals. Painlessly setting aside money for savings accounts and investment accounts will help earners meet their financial goals. Doing so gives them a stronger financial future, protects them against unforeseeable expenses and acts as an emergency fund. Cambio has several solutions to help earners automate their finances so that they can think less about money and end up with more of it.