Do you hate keeping track of which bills are due when?
Do you find yourself reaching the end of the month and wondersing where all your money went?
Do you want to save more, but you never seem to have enough left over?
If you suffer from any of these financial issues, the answer to your problems may be as simple as adopting a “set it and forget” strategy. Automating your finances is one of the easiest ways to get better control of your money.
We’ll get into the “why” in a moment, but first, let’s look at what we mean by automation.
How Automation Works
“Automation” means setting up automatic systems to take care of money management tasks you normally handle yourself.
Automating your savings could involve setting up an automatic transfer from your checking to your savings account every pay cycle, so you never have to remember to put anything aside yourself.
Automating your retirement contributions could mean setting up an automatic deduction from your paycheck that’s added to your 401K account, or automatically transferring money from your checking account to your Individual Retirement Account (IRA) each month.
Automating your bill payments means setting up an automatic recurring debit from your checking account to your heating company, phone company or other service provider on the day your bill is due.
If you’re worried you’ll spend the money you’ve earmarked for bills before their due date comes up, consider opening up two separate checking accounts—one for bill payments and one for spending money. Each time you receive a paycheck, have a set amount automatically transferred to each account to cover your needs.
Those are the basics of automation. (Pretty simple, right?) Now, let’s get into why automation is such a great thing for your finances.
You forget to mail out the cable payment on time, and you’re hit with a late fee. You accidentally spend the money you’d designated for the phone bill. We all make mistakes. Even the most organized among us has had a momentary lapse in memory or judgment. But those lapses can through a wrench into our financial planning.
When you automate your finances, you remove the human error factor from the equation. Want to put $100 aside for savings each month? It’s done. Want to pay all your bills on time? It’s done. Easy as that.
When you pay yourself first, you take the money you need for savings and bills and place this “out of sight, out of mind.” This makes it much easier to resist temptation when you’re faced with an enticing purchase.
If the money were available in your account, you could potentially talk yourself into spending it. But you can’t spend what you don’t have. Placing it out of sight reminds you it’s been allocated for other things.
We’ve all had moments where we consider “robbing Peter to pay Paul.” Our car breaks down, and we use the money we’d meant to put into retirement savings to fix it, figuring we’ll make up the difference at some point later on. (Then something else comes up, and we never do get around to making up that difference.)
When you automate your savings and bill payments, you’re left with only a certain amount of money to get you through the month’s other expenses. When an unexpected expense comes up, you’re forced to get creative about paying for it—either you can delay the purchase, find a cheaper way of obtaining it or slash another spending area, like eating out for the rest of the month, to pay for it.
Speaking of those unexpected expenses, automating your savings helps you to deal with them, too. When you’re regularly setting aside a certain amount of money each month for savings, you can build up an emergency fund that will cover any of those extra costs that can (and will) crop up, without derailing your budget.
Late fees, overdraft fees, bounced check fees… All of these expenses can strip away your hard-earned cash. When you “set it and forget it,” the likelihood of incurring these extra fees goes down dramatically.
Time is money, as they say. The less time you spend coordinating bill payments, handling paperwork and fiddling with your budget, the more time you have for money-making (or money-saving) activities like starting a side business, cooking from scratch, or selling your gently-used stuff on eBay.
When you automatic your finances, you that know any money you have left over is spending money, so you can splurge on that new phone or feed your latte habit without worrying it will hurt your ability to pay your mortgage. And that’s a very nice feeling.
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