Automating your personal finances can help you achieve your long-term goals, whether you decide to automate your income, expenses, or investments. It can also keep you from making impulsive or questionable monetary decisions.
Keep reading to learn four easy steps on how you can start automating your finances. Your future self will be grateful.
What Is Finance Automation?
If you’ve ever had a utility bill set up to be paid through your bank whenever it arrives, you already have an idea of what finance automation is.
Overall, it’s a process wherein a system automatically makes financial decisions for you, whether it be deducting money from a specific bank account to settle a bill or depositing a set amount of money from your salary into another.
How Can Finance Automation Affect your Personal Finances?
One of the difficulties of managing your personal finances is that you’re faced with so many decisions so often.
For example, each time you get your salary, you have to decide how much you want to save. Whenever you get a bill, you have to decide when and how you’ll pay for it. If you’re paying off a debt, you have to be mindful to put aside money for it each time.
Automating these processes not only makes your life incredibly convenient (imagine never forgetting about a payment), but it also makes saving money a breeze. With your cash going to payments and savings before you even touch it, you can easily work within your means and avoid the temptation of spending beyond your budget.
You also save time, as the system will manage your money for you. This would then allow you to focus on more important things like applying for a better-paying job, closing a deal for your budding business, or spending time with loved ones.
4 Steps To A Successful Personal Finance Automation
If you’re considering automating your personal finance, the first four steps you’ll take are opening the appropriate accounts, paying yourself first, paying your bills/debts, and investing. Follow this guide:
Step #1. Open the accounts for your automated systems
To set the stage for the automation process, you need the proper accounts to do so. Generally, this means opening a checking account, which will serve as the central hub for all your incoming and outgoing cash.
Consider your banking needs and pick an institution that best suits you. Look over the requirements needed to open an account—such as proof of identification and minimum balance—and prepare these.
Then, speak with a representative at your bank and go through the process of opening your account.
Step #2. Set your savings on autopilot
Warren Buffett, one of the most successful investors in the world, gives the following advice: “Don’t save what is left after spending, spend what is left after saving.”
You can easily do this by setting up your bank account to automatically deposit an amount of your salary into a savings account. The general consensus is to save as much as 20% of your income, which would help you build an emergency fund for three to six months. This is to cover any unexpected costs like your car breaking down or losing your job.
After your savings, deposit the rest of your income into a “spending” account. Then, commit to only spending what’s “left” in your spending account.
Not only does this ensure that you are actually saving money for the future, but it also ensures that you have a financial fallback.
FINRA’s National Financial Capability Study found that in 2015, only 46% of Americans had a “rainy day” fund or an emergency fund tucked away for unexpected expenses.
While it makes sense to save for expenses that we plan for, it’s easy to forget to budget for emergencies. By setting up a system wherein you save before spending, you will less likely be caught without money when you suddenly need it.
Step #3. Set up your payments for your debts, bills, and expenses
The next step is to pay off what you owe.
This means setting up payments for debts, bills, and other expenses. Nearly all bills can be easily set up for automatic payments, while others may require a trip to the bank.
However, this small inconvenience has significant payoffs. As you know, going past due date often comes with the risk of racking up interests or getting your utilities cut. Automating your bills means you’ll never have to spend time lining up to pay and you will never have to worry about missing a payment.
If you are paying off a student debt, you can also pair up automatic payments with reliable refinancing companies to make the most of your money. Make sure that you thoroughly research these companies by weighing the pros and cons of each, as well as looking for client reviews.
4#. Set up automatic investing
Now that you’ve saved up and paid off your bills, the next step is to automate your investing.
If you are saving up for retirement (which you absolutely should be doing), you can automate your contributions to your retirement fund. Automating this process can help you maximize your contributions, so that you make the most out of the interest over time.
You can automate this through a personal retirement account. There are, however, many employers who also offer retirement plans and deduct the contributions from their employees’ salaries. If this applies to your current employment setup, make sure you discuss with your boss how much you can contribute to maximize your investment in the long run.
Work Hard And Smart
Now that you have an idea on how you can automate different aspects of your personal finances, it’s up to you to decide which of these fit your needs, your financial capabilities, and your lifestyle.
Remember, the goal to automating your finances is to help you save money and to make your life more convenient. Work hard so you’ll live a good life, and be smart with managing your finances.