How to Automate Your Finances
Jan 19, 2022 6 min read
- Automating your finances can help you save time, avoid late payments and better manage financial goals.
- Your paycheck, recurring bills, savings, retirement contributions and budgeting are all financial tasks that can be automated versus manually handled each month.
- To make automation work for you, there are some benefits and drawbacks to keep in mind.
Virtually everyone would agree that managing finances takes a lot of time and effort. But did you know that there are easy ways to automate certain tasks? From direct deposit to savings, automating your finances can help you reduce stress, worry less and save money. Most importantly, automating frees up your focus so that you can better manage the present and plan for the future. And that is a great start toward gaining control of your finances.
Read on for a handful of steps that can simplify, streamline and organize your financial life to free up time and energy.
What Does it Mean to Automate Your Finances?
Setting parts of your finances on autopilot means establishing recurring ways of taking care of some of the tasks you normally handle yourself. It’s all about putting systems in place to handle routine money matters so you can “set it and forget it.”
What Type of Accounts Can You Automate?
These days, you can get paid and authorize automatic payments for your mortgage or rent, utilities, insurance, student loans and credit cards every month without lifting a finger — or sealing an envelope. You can also automatically direct a portion of your funds to important goals like saving and investing. Here’s a quick rundown of the kinds of things you can automate:
Direct deposit your paycheck. Most employers offer or require direct deposit of paychecks into the bank account you choose. A form from your human resources department, along with the account and routing number from the account into which you wish to have your automatic deposits, is generally all that’s needed to save you a trip to the bank and have the money show up in your account sooner.
Bill payments and statements. Your checkbook may start feeling lonely, but you can pay many recurring bills — like utilities and mobile phone services — automatically without having to bother with writing checks and mailing payments. Through the online bill pay system at your bank, your credit card account or directly with each company, you can arrange for automatic bill-pay with a schedule you set.
Savings. Our best intentions are to devote some of the money we earn to savings, but by the end of the month, sometimes there may be little left. Here’s where automation can help. The trick is to pay yourself first — without having to make a conscious decision to do so. You can accomplish this through automatic transfers from a checking account to a savings account. Arranging with your bank is all it takes to set up recurring deposits in an amount you choose. What’s more, you can also multiply the process with separate savings accounts you earmark for a specific purpose, such as your rainy-day fund, future home down payment or next vacation.
Retirement accounts. Another great way to save automatically without thinking is arranging to automate contributions to the retirement plan offered by your employer. A portion of pay you choose is deducted before it’s added to your paycheck. That may help ease any sense of sacrifice you might feel from trying to save after the fact.
Budgeting. The idea of automating your finances can also strengthen budgeting efforts if you lean on the spending tracking features that most major banks and credit card companies provide. These automatically capture each deposit and every purchase and payment you make, classifying them by category. That allows you to see and search transactions and get detailed spending snapshots — all of which can make it easier to track and monitor whether any expenses are unexpected or out of hand.
What Are the Benefits of Automating Your Finances?
You know the adage, “Time is money?” A big benefit of automating your finances is simply the time and hassle it saves.
It’s not uncommon to spend a few hours each week sorting through bills and statements and keeping track of due dates. But predictable bills and deposits don’t have to be taking up your valuable attention. The less time you spend, say, paying bills or taking your paycheck to the bank every two weeks, the more time you’ll have for money-making or money-saving priorities.
And besides being a great time-saver, automation can also ensure your scheduled payments are on-time and aren’t missed. That’s vitally important for bills that get reported to the three main credit bureaus and affect your credit score.
Another plus of automating your finances is helping maintain and achieve savings goals while keeping your budget intact. It creates positive, long-term habits and gets rid of the temptation to stray from the budget you’ve set.
What Are the Drawbacks of Automating Your Finances?
Automating your finances has some real advantages, but there are a few potential downsides to keep in mind and try to avoid.
While convenient, it can also be problematic if billing errors, price changes, interest hikes, added fees or other overages crop up and are overlooked. Spot checking, account monitoring and alerts or notifications can help you catch issues that need attention. And not having to think about doing the mundane money management tasks should allow you to devote a little more time making sure everything’s accurate and on track.
Another possible concern to be aware of is that automatic debits from your bank account could result in an overdrawn balance and overdraft fees if the payment timing is out of sync with your paycheck timing. To avoid this cash flow shortfall, always choose a date in the month when you’re confident that sufficient funds will be available.
How Do I Automate My Finances?
Among the simplest ways to automate your finances? Authorize autopay by credit card for accounts that accept it, or set up a recurring payment through your financial institution’s online banking bill-pay service. You’ll have control over multiple bills in one place for free and can adjust, change or stop payments instantly if necessary.
To help set you up for success with personal finance automation, here are some do’s and don’ts to consider.
- Do automate predictable, high-priority bills.
- Do automate bills that get reported to credit bureaus to ensure that a record of on-time payments works to improve your credit score.
- Don’t automate bills that require careful attention and review.
- Don’t automate bills with variable due dates or widely fluctuating amounts that could make it harder to manage and maintain having available funds in your account.
Making Automation Work for You
Keeping track of money tasks manually can be daunting. But putting your pay, savings and predictable bills and investments on autopilot can greatly simplify the burden. A good automation system will enable you to direct dollars to the things that matter most, while making sure important payments don’t fall through the cracks.
About the author
Jonathan Walker believes improving our personal financial resilience is about living our best lives.