Check out our roundup of the best tools to automate your personal finance. From budgeting to investing, we’ve got you covered!
One of the greatest ways to be successful with your budget and reach financial goals is to automate your finances. If you tend to save little and have missed or late bill payments, you can benefit from automating your finances. It will help you manage your funds and take control of them.
Don’t worry if you aren’t sure where to start. Here is why automating your finances is important and how you can do it.
What Does Automating Your Finances Mean?
Automating your finances means you set up savings accounts and bill payments to be paid each month automatically. You are using autopilot and don’t need to remember to make on-time payments.
People who face late bills and have to cover penalties or finance charges know how challenging it may be to have everything in mind and remember all financial obligations.
For instance, when you take out a debt consolidation loan no credit check, you may easily forget about the fixed payments that will inevitably lead to expensive charges or late penalties. When you automate your finances, the bills will be paid on time to avoid costly fees. You just need to adjust settings occasionally to check that everything goes according to plan and that your finances will be organized.
What Accounts Can Be Automated?
Consumers may automate different accounts to control their finances. You may automate your bill payments:
- Credit cards.
More than that, consumers may set automatic contributions to their investment or savings accounts such as:
- Short-term savings;
- 401k and other long-term savings;
- Emergency fund.
Why Is It Important to Automate Your Finances?
We all have to deal with multiple financial decisions daily. Every day we think about saving more, repaying our debts, paying the bills on time, investing, and rebalancing our portfolio. What do we do instead? When you are overwhelmed with the number of choices, you usually just do nothing in the end.
According to The Bulletin on Aging and Health Archives by the National Bureau of Economic Research, making employees automatically make contributions to their 401(k) accounts raised the rates from under 40% to almost 100%.
Many people believe that personal finance and success are all about willpower. In reality, it’s not. The psychology of automation is crucial for those who want to get control of their finances.
Steps to Put Your Finances on Autopilot
#1 Open the Appropriate Accounts for Automated System
This is the first step to automating your finances. You should open the right accounts, such as your checking account in the first place. Make certain you have a cash cushion set aside in your bank account. It will serve to protect you from unpleasant surprises and overdrafts as a result of a mismatch in the timing of your salary and automatic bill payments.
So, if your paycheck comes a few days later, you will still have enough savings to cover the automated bills on time. Don’t make this cushion too big. From 20 to 50% of your monthly costs will be enough. If your income and expenses are unpredictable or unstable, you should set aside about 100 to 150% of your monthly costs.
Furthermore, you may use other accounts such as credit cards. This isn’t the option for everyone, but you may earn 2% to 6% on certain spending categories like dining, gas, travel, or groceries with various credit cards.
#2 Pay Yourself First
Once you’ve made a safety cushion in your bank account and opened one or several credit cards to enjoy cashback and rewards, you should start building the automation process. The next step is to pay yourself first.
The day your paycheck comes to your bank account, you should allocate a portion of it towards your retirement fund and emergency account straight away. Don’t worry if you have a high-interest debt to tackle. Making regular contributions to your emergency and retirement funds is more important.
#3 Set Up Automatic Payments for Your Bills and Expenses
Now it’s time to concentrate on your bills. It includes different bills and credit cards you have. You may automate your tuition expenses, utility payments, mortgage, subscriptions, memberships, etc.
This will help you stop worrying about whether you remember the payments due. It’s more difficult to pay for rent automatically but you may negotiate this question with the building manager or your landlord. Perhaps they will agree to set up automatic digital payments as well.
#4 Make Automated Contributions to Investment Accounts
Finally, you should set up automatic contributions to your investment accounts. It will prevent the desire to time the market if you make automatic deposits at predefined times. This process will also let you diversify your purchase price as you will make regular investment contributions.
You can buy more shares when the price is low when you make equal dollar purchases. A great option is to have a retirement plan such as 401(k) or 403(b) as they are sponsored by the recruiter.
#5 Boost Your Automated Transfers Over Time
The final step to automating your finances is to find a path to boost your savings over time. It demands more work and dedication. You may benefit from using some online investment platforms that let consumers boost their recurring contributions annually.
Online banks offer the same services. You should make a recurring calendar event for the same date each year unless this feature is available at your bank. What is the main advantage of this decision? It prevents lifestyle creep that might happen with a growing salary.
The Bottom Line
It’s worth automating your funds, although it usually takes effort and time. Once you set up automatic payments and contributions, you will have more chances of achieving your financial targets. Create a budget, set up direct deposit, schedule your bill payments, and automate your savings and investments as these are the main steps to reach financial success.
Disclaimer: information contained herein is provided without considering your personal circumstances, therefore should not be construed as financial advice, investment recommendation or an offer of, or solicitation for, any transactions in cryptocurrencies.