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Managing your money can take hours out of your week. Between paying bills and saving for retirement, it can be stressful and it’s easy to drop the ball. These days, you can save yourself oodles of time and stress by setting most of your monthly tasks on autopilot. While it may cost you a little bit of time to set up initially, the future hours you’ll save are priceless.
Automating your finances is an excellent way to make sure your bills are paid on time. But that’s not the only perk. You can also enjoy watching your savings grow. Here’s our simple guide to automating your finances.
Why Automate Your Finances?
Automating your finances takes the human component out of finances. You won’t have to remember to pay all your bills by a certain date or set aside money for retirement and savings.
Your finances can work like a well-oiled machine. You can pay your bills on time and start to see your savings increase.
How to Automate Your Finances
Research shows financial education has little effect on financial actions. But with easy systems in place, you’re more likely to succeed financially. If you’re looking for a better way to manage your money, here are a few simple steps to help you get started.
Step 1 – Open the Right Bank Accounts
You need a checking account with an online bill pay feature. Choose a bank that fits your style. If you prefer to bank on the go, try a bank with a robust mobile app.
If you’d rather use your computer or laptop, make sure the bank offers an easy-to-use website (some are better than others). If you feel more comfortable being able to get in-person help, then you’ll want a bank with local branches. Here’s our list of best checking accounts.
Also, open a high yield savings account for your savings goals. Here’s a list of our favorites to get you started. This account will be used for emergency and short-term savings.
Step 2 – Set Up Direct Deposit
In his book The Automatic Millionaire, David Bach writes about the importance of “paying yourself first” in order to grow your wealth. Bach suggests that you fund your savings vehicles before you ever touch your paycheck. With direct deposit, paying yourself first is easier than ever.
If your employer offers a direct deposit option, elect to have your paycheck directly deposited into your checking account on payday. Instead of taking a check to the bank every two weeks, you’ll receive it directly to your checking account. Most of the time, you only have to fill out direct deposit paperwork once to make the automation permanent.
You can even split your check. Some funds can go to your savings account and the rest to your checking account. That way you’re hitting your savings goals every paycheck.
Or, you can set up an automatic transfer from your checking to your savings account. This is money you can use for emergencies and other short-term saving goals.
We recommend having three to six months of cash in your emergency fund. Add up the bills you need to pay every month. These include your rent, utilities, groceries, and transportation to work.
For example, let’s say those bills add up to $2,200 per month. Multiply that by three and you get $6,600. That’s the minimum amount you should have in your emergency savings.
After padding your emergency fund, you can start saving for other goals, like vacations or a car.
Step 3 – Simplify Your Bills
Ideally, most bills would be due around the same time of the month. Paying your bills on payday keeps you from spending your bill money. You can do this by splitting up your expenses between paydays.
For example, if you are paid on the first of the month, call and ask to have your monthly, recurring bills sent near the beginning of the month. The same goes if you are paid on the 15th.
If you get paid twice a month, you have two options. First, you can elect to have all of your bills sent to you on the first of the month. In this case, you’ll need to be aware of your cash flow throughout the month so that you don’t overspend between paychecks. The second option is to split up your bills between your paychecks. For instance, you can have half of your bills sent to you on the 1st while the second half of your bills sent to you on the 15th.
Once you decide which bills you want to pay on a certain date, call each company to get the bill due dates changed. Many credit cards let you set the due date of your monthly bill.
Step 4 – Set up Contributions to Your Retirement Account
Next, you want to set aside money for retirement. Many workplaces offer auto-enrollment for a retirement account, generally a 401(k). Your employer can send part of your paycheck to your 401(k) account for you. You can also set up automatic transfers from your checking account to an IRA.
Saving 10% of your earned income in a retirement account is a great starting point. This money is deducted pre-tax, which is a great advantage to your savings goals. Plus, your company may match a percentage of your earnings – even up to 5 percent of your salary – increasing the amount of money you save each year considerably.
Auto enrollments are huge benefits to your retirement savings. A Vanguard study found that nine out of 10 participants stayed enrolled in the program for more than three years. That money adds up over time, and over time you won’t even miss it.
If your company doesn’t offer retirement plans, consider opening an IRA.
Step 5 – Set Up Bills on Autopay
A huge part of automating your finances is to set up auto bill pay. It’s going to take a bit of time to enroll each of your accounts for bill pay but it’s worth it. Auto bill pay also helps you avoid missing a payment.
There are three ways to set up your bills for auto pay:
1. Use your bank account’s Bill Pay feature. Both online and traditional banks offer online banking options, which usually include online bill-pay. Simply log into your online banking account, enter the billing information and the day you’d like to pay it each month, and you’re done. The best part is that you only need to do it once.
2. Set up a direct debit with each creditor. This allows the creditor to take funds directly from your bank account to pay your bill.
3. Get a rewards credit card. Giving all your creditors access to debit your bank account might feel risky. Instead, consider using a cash back credit card to pay your bills. At the end of the month, you’ll only have one bill that needs to come out of your checking account. Just like setting up online bill pay through your bank account, go to your credit card account and load the billing info. Then, select when and how much your credit card should pay toward the bill each month. While not all companies allow you to pay via credit card, this is a great way to rack up some extra rewards points if you have the opportunity. But, you’ll have to ensure you have enough money to cover the credit card payment at the end of the month.
If you are unable (or unwilling) to get all of your bills sent to you on the same day, you may consider using an app like Mint Bills. Just load all of your recurring bills into the app and let it track your due dates for you. You can also pay your bills directly through the app using either a credit card or bank account that you have connected. While it isn’t quite automatic, it is the next best thing.
Step 6 – Invest the Rest
You’ve paid all of your bills, budgeted for other expenses, and saved money for your retirement. So, what should you do with the money you have left? It may be time to think about investing, and Betterment is a great way to do it automatically.
Start by giving Betterment some general information about yourself including your age, time horizon, and appetite for risk. From there, Betterment will invest your money into a low-cost ETFs that suit your investment style. You can set up your account to make automatic deposits, which should take place a few days after payday to avoid issues. Betterment even checks your portfolio drift on a daily basis and will automatically rebalance it for you, either through buying/selling some of the securities that you hold or through using your cash whenever you make a deposit. While you can customize many of these options, you definitely don’t have to. If you want, you can just set it, forget it, and let Betterment take care of the rest.
M1 Finance is another great investment platform, with a slightly different approach. M1 Finance gives you the option of choosing from one of their pre-made diversified portfolios or customizing your own with ETFs or stocks of your choice. Once you’ve chosen your portfolio, you can set an investing schedule to deposit money every month, week, or every other week. After that, you just let the automated intelligence keep your portfolio on track in the background. Unlike other robo advisors, M1 Finance offers its services with absolutely no management fees or commission.
Tips for Automating Your Finances
Automating your finances is a great way to stay on top of your finances.
- Make sure you have enough money in your checking account to avoid overdraft fees.
- Follow up and confirm each bill gets paid every month. This is easy to do with a simple checklist.
- Consider paying some bills with a cash back credit card to earn cash back or points. Make sure you also schedule to pay your credit card off each month. You can start small by charging your phone bill or streaming service to the card. This also helps to build your credit. You’ll be using your card every month, paying it off, and keeping your credit utilization low.
Tools to Help You Automate Your Money
You can use budgeting apps to create a budget if you don’t have one already. If you have to pull money out of savings to cover your bills at the end of the month, it’s time to reassess your budget.
Check out our list of Best Budgeting Apps to find one that offers the features you’ll use most.
If you’re having trouble deciding where to cut back on your budget, try using a service like Trim. Trim can point out subscriptions you’re paying for that you might want to get rid of.
Is automated bill pay safe?
Yes, automating your bills is safe. Most companies that allow automated bill pay encrypt your payment information.
Does automating save you money?
Over time, automating your finances can save you money. If you’re often late on your bills, it can save you from late fees. You’ll also enjoy watching your savings account grow each month.
Does automating your finances help build your credit score?
Since automation ensures that bills get paid on time, it can help build your credit score.
Are there any drawbacks to automating your finances?
If you decide to change banks, you’ll have to set up all your automation again and that can be a laborious task. Otherwise, be sure you stay within your budget and don’t overspend to avoid overdraft fees.
The Bottom Line
Automating your finances takes a bunch of work off your plate. You won’t have to remember which bills are due when, and you can trust that all the bills are getting paid on time. You still need to keep an eye on where your money is going and when it is leaving your accounts in order to avoid any problems. Additionally, you’ll need to be sure that you’re spending a little bit of time each month budgeting for non-recurring expenses.
If you’re on the fence about automation, start small. Set some money to go into a retirement account and some money to go into savings. After that, you can start to tackle bills.
Automation isn’t an all-or-nothing system, you can make it work best for you. The important thing is that you’re taking the steps to live your best financial life.