Automating Your Finances – Save time, save stress, save money. How?
Did you get up this morning, thinking, “Wow, I can’t wait to spend hours this week paying my bills and stressing out about how to pay for our vacation next summer!”?
My guess is you probably have things you’d rather do with your time. The great thing about automating is that you won’t just save time paying bills and making decisions about your money. You’ll also be able to put more aside in your savings and investment accounts. This way, you’ll reduce or eliminate late fees and interest charges. It makes dealing with your finances less stressful and more fun.
In this episode of Money Talk for Moms, I walk you through the what, the why, the how, and some tips and warnings, and the overall magic of automating your finances.
First of all, What is automating?
Automating is simply using technology to automatically pay your bills, put money in specific savings accounts, and contribute to your investment funds. In most cases, the technology you need is already built into your bank account. If you have any problems using it, your bank’s customer service department will be happy to walk you through it.
Why Should You Be Automating Your Finances?
Most of us know we “should” be saving more, that we “should” pay our bills on time, and that we “should” set aside money to invest. But in the day-to-day scramble of making ends meet, it doesn’t always happen.
When we automate, we have money automatically taken out for savings and bills as soon as our paycheck is deposited into our account. You won’t have to spend time doing it yourself, and since you’ll never see that money, you’ll never miss it.
So how does automating your finances work?
It can take a couple of hours upfront to get your automation started, but it will save you a ridiculous amount of time over the long run.
If you watched last week’s video, you’re now hopefully tracking your money, and you have a sense of how much is coming in and how much is going out. Now take a few minutes to think about some things you’d like to save for. Maybe a vacation, some home repairs you know you’re going to need, or an emergency fund.
Next, access your bank account online. In addition to a standard checking and savings account, most banks give you the option of creating sub-accounts. You can create one for your family vacation, another for home repairs, another for your emergency fund and so forth. Now, set up a transfer from your main account so that a certain amount of money is automatically allocated to each of these sub-accounts as soon as your paycheck is deposited. The money will be set aside before you’ve ever had a chance to spend it, and you won’t miss it at all. When you need it, all you need to do is transfer it back into your checking account.
Next, automate your bill paying.
For any bill that’s the same amount each month, like your mortgage, your student loans or your cable bill, simply set up a recurring payment so that those bills get paid as soon as you get paid. Easy peasy.
For bills that are a different amount each month, like your credit card or your electric bill, you’ll have to go to the provider and set up a recurring withdrawal, where they’ll automatically deduct what you owe every month.
The drawback to that is that if you get a bill that’s higher than usual, you may suddenly have less money in your account than you anticipated. It’s up to you if you want to automate these bills or not, but at the very least, you can automate a minimum payment on your credit card, which will eliminate the late fees that credit card companies like to sock you with.
Finally, automate your investments.
Typically, this is going to mean transferring your money outside your bank. Go to your investment company and follow their directions to link your bank account. It can take a few days to verify, but once that’s done, you’ll be able to set up an automatic transfer every month.
We’ll talk more in future videos about how to invest. For now, just know that saving money to invest is one of the most important steps you can take to start building wealth.
Three Warnings and a Tip About Automating Your Finances
Just a few things to watch out for:
Most banks allow a certain number of free transfers per month, then charge for subsequent ones, so make sure you understand your bank’s policies. Call and ask for clarification if you’re not sure.
Automating makes your life easier, but it doesn’t let you off the hook. It’s still your responsibility to be aware of what your bank balance is and keep an eye for anything that isn’t working, so check in with your accounts regularly.
Finally, it’s exciting to start saving, but don’t try to save too much at once. Otherwise, you’ll run out of money before the end of the month and end up even more stressed out than you were. Start small, with maybe 5% of your take-home pay, and see how it goes.
And here’s my tip: automate your raises
Anytime you or your husband get a raise, have half the new money automatically allocated to savings, investments, and paying down debts, and do whatever you like with the other half. That way you save more and still get to enjoy your raise.
What are you waiting for?
The sooner you start automating your finances, the sooner you can start saving time and seeing your account balances add up. Now I want to hear from you. Have you been automating any of your finances? What will be your first or next automation after watching this video? Leave a comment below and let me know!
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Remember: InvestDivas don’t wait—they automate!