Turning over control of your money to computers might sound like an odd concept, but doing so can actually save you time and money! Humans can easily forget bills, make mistakes, and ignore savings and investments. Over the years, this could be the difference between financial success and heaps of fees and paycheck-to-paycheck stress.
When you automate your money, your cash flows through a system you define every month without lifting a finger. Things like emergency savings, retirement investments, student loan payoffs, and credit card payments can happen on paydays and due dates without ever writing a check or having to remember to click a button. Follow along to learn why you should automate your money and how to get started.
What does it mean to automate your finances?
Automating your finances doesn’t require an advanced degree or knowledge of code. It just means logging into your online banking and setting up recurring payments and transfers using existing tools your bank already gives you for free!
Most banks give you the ability to set up recurring transfers to internal or external accounts. You can create transfers to send on payday, weekly, monthly, or any other schedule you choose that your bank supports.
If your bank doesn’t have automated transfer tools, consider moving to a new bank. This is standard stuff in the 2010s and beyond, and something every quality financial institution offers to personal banking customers at no extra cost.
Outside of your bank account, you can set up some automated payments at investment and biller websites too. In the next sections, we will dive into the “how to” for getting your automated personal finances working for you.
How to automate savings
Automated savings are great for things like emergency funds, down payment funds, vacation funds, holiday gift funds, wedding savings funds, and any other cash-based savings you can think up. The more you save, the more you have for a rainy day or a future goal.
There are three great ways to automate your savings depending on where and how you want to save:
- Split your direct deposit – Splitting your direct deposit so a portion of your income goes right to savings ensures you never accidentally spend money you wanted to save. Contact your company’s human resources department to get information on splitting your direct deposit between two or more accounts.
- Automatic transfers at your bank – If your bank supports automatic recurring transfers as described above, that is a great way to send money to various accounts at the same bank or a different one.
- Save with an external app – Qapital and Digit are examples of apps that help you automate your savings at an outside bank. Qapital lets you set up rules for savings on a schedule, purchase round-ups, or based on other criteria. It has tons of features and the savings tools are free. Digit uses a smart bot to transfer cash to a savings account for a modest monthly fee.
How to automate investments
You have a handful of options to automate investments. You can use an automated app like Qapital or Acorns to make investments automatic, but your employer and investment companies likely offer additional free options to help you invest on a recurring schedule.
At your employer, you may be able to set up investments funded by automatic paycheck deductions. Like a split direct deposit, this ensures your money goes right to investments before you have a chance to spend it. Many personal finance personalities call this “paying yourself first.”
Your 401(k), 403(b), or 457 retirement plan is an example of this. I used to have an automatic 401(k) contribution and also created a split direct deposit of $211 per payday to fund my Roth IRA at my chosen investment firm.
Most investment experts suggest saving at least 10% to 15% of your gross income to maintain the same lifestyle in retirement. Also, make sure you take 100% of your employer match if one is offered on your retirement account. If you don’t, it is like leaving free money on the table!
Your investment brokerage likely has several ways to setup recurring investments depending on your needs. Check out its website for more details and information.
How to automate debt payments
If the idea of automating your debt payoff sounds enticing, you’re not alone. I used automatic payments to help me pay off my $40,000 in student loans in two years. Millions of people use automatic payments to pay off credit cards, mortgages, student loans, and other debts.
Most lenders give you an option to set up automatic recurring payments at their websites or through their mobile apps. You can also set up recurring payments from your bank’s bill pay system to pay credit card bills in full, send a certain payment amount on a regular schedule, and other options depending on the bank and biller.
Splitting your student loan payment into two automatic payments every month on payday helps you align your expenses with your income. Even better, if you get paid 26 times per year, it is like adding a full extra month of payments without cramping your budget. It also saves you a little bit of interest as your payment goes to accrued interest first and then gets applied to the outstanding principal balance.
Personal finance automation saves time and money
Automating your money takes some time to set up at the start, but think of that as a time investment. Your time spent today will give you plenty of free time in the future. If you want to take it a step further, you can even automate how you track your finances with a popular money app like Mint or Clarity Money.
The one thing to look out for is accidentally overdrafting your account with too many automatic payments and withdrawals schedule that don’t line up right with your income schedule. But if you can avoid that, you should be in great shape automating your savings, investments, and debt payoff for years to come.