Managing your money is time-consuming. Between paying bills and saving for retirement, it can be easy to drop the ball.
Automating your finances is an excellent way to make sure your bills are getting paid on time. But that’s not the only perk. You can also enjoy watching your savings grow.
The benefits are clear and the process is easy. Here’s our simple guide to automating your finances.
- Why Automate Your Finances?
- Our Simple Guide to Automating Your Finances
- 1. Open the right bank accounts
- 2. Set up Direct Deposit
- 3. Set up contributions to your retirement account
- 4. Set up an automatic transfer from your checking to your savings
- 5. Change your bill due dates to align with your paydays
- 6. Set each of your bills to be direct debited from your bank account or credit card
- Tips for Automating Your Finances
- Tools to Help You Automate Your Money
- Final Thoughts
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.
Our Simple Guide to Automating 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. Here are the six simple steps to follow.
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.
2. Set up Direct Deposit
Set up direct deposit through your employer. Instead of taking a check to the bank every two weeks, you’ll receive it directly to your checking account.
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. We’ll talk about another way to contribute to your savings below.
3. 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.
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.
4. Set up an automatic transfer from your checking to your savings
If you didn’t already set up a direct deposit amount to your savings, here’s what to do. You’ll want to 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.
5. Change your bill due dates to align with your paydays
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 get paid twice a month, pay half of your creditors when you get your first month’s paycheck. You can pay the rest of your bills with your second paycheck.
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.
6. Set each of your bills to be direct debited from your bank account or credit card
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. You can schedule your account to pay a creditor an amount on a specific date each month.
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. But, you’ll have to ensure you have enough money to cover the credit card payment at the end of the month.
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 scheduling to pay 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 in 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.
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.
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.