When Does It Make Sense to Automate Your Finances?

Automating your finances is one way of simplifying your financial life.

When your automate your finances you use your bank, credit card, or service provider’s website to set up automatic transactions on your behalf.  You can automate paying your utility bills, paying your credit card, investing your retirement funds, and many other tasks.

Finance automation is often touted as one of the top ten things you should do to improve your finances.

While having your bills paid on time does help you save time and avoid late fees, completely automating your finances is foolish and nearly impossible to do.

How Automating Your Finances Improves Your Finances

Late fees.  Overdraft fees.  High interest rate penalties.  Missed payments.

All of these items are the result of mismanaging your finances.  Missing one payment can result in your interest rate on your credit card going sky high.  Missing the payment due date on any bill will automatically reward you with a late fee on top of what you already owed.

In short, mismanaged finances end up costing you thousands of dollars with all the fees and higher interest rates you pay.

Wouldn’t it be great if you didn’t have to remember to write the check, put a stamp on the envelope, mail it out, and double check that it was cashed to make sure your payment was processed on time?

Enter automated finances.

You can eliminate the problem of bills going unpaid on time or being missed completely by making a few small changes in your financial management.

Setting up automatic bill pay — either from your bank to the companies you owe money to, or vice versa where the company has your banking information and automatically drafts from your account — can eliminate all of the above fees except overdraft fees.  (To avoid those you need to make sure you have enough money in your account on the days your service providers will withdraw funds.)

Continues After Advertisement




This simple change, over time, can save you a ton of money and time.

As long as you have a healthy cushion in your checking account you don’t have to worry about paying your bills on time.  It just happens on schedule, and you can spend your time on other profitable tasks like resting or earning more income.

How Automating Your Finances Can Ruin Your Finances

clockAs great as financial automation is, it can also be incredibly dangerous if you don’t control it.

The number one mistake people make with financial automation is they truly believe it is a “set it and forget it” situation: you set up the automatic bill pay and never have to look at any other bill or statement again.

Wrong!

If you never look at your credit card, mortgage, or utility bills and statements you could be missing out on errors that hit you straight in the pocketbook.

Here are some items you might miss if you never look at your account statements:

Fraudulent charges.

There might be fraudulent charges on your credit card that you miss because you don’t look at the statement.  You still pay the bill on time and don’t pay interest, but someone slips a $14.99 charge on your account that you never catch.

Imagine this going on for several months before you catch on.

Negative trends.

Your water bill is 3 times higher than normal, but you don’t catch it.  You end up with a $600 water bill automatically drafted out of your account because the main line to your house has a serious leak in it.  The large payment puts your account in the negative, and you get hit with $90 in overdraft fees… all because you didn’t review the statement.  (This actually happened to someone I know.  Reviewing the statement wouldn’t have fixed the $600 bill, but would have been useful in avoiding all of the overdraft fees.)

Ignorance on where you’re spending money. 

One of the most beneficial parts of reviewing your bank and credit card statements is figuring out how much money you’re spending on certain items.  You can’t know how much of your credit card bill was groceries versus eating out if you never review the statement.  If you don’t know those amounts you can never make significant financial change happen in other areas of your life — like cutting back on eating out.

Finally

While I absolutely love my bills being paid on time, I don’t let myself use it as an excuse to stick my head in the sand about what is going on.

Automating your money is just one step forward in your financial growth.  You still need to review the statements to make sure you aren’t missing other big opportunities to save money.

Don’t use financial automation as an excuse to be financially lazy.

What finances do you automate?  Why?

Free Newsletter to Keep you Free From Broke!Name: Email: We respect your email privacyPowered by AWeber email marketing
Published or updated May 3, 2013.

Comments

  1. I don’t think I can ever get to auto pay for my bills. I set up reminders to make sure I do not forget. Plus, as you mentioned, how can you see that there are fraudulent charges if you put your finances in auto drive. I have been doing my own finances for 20+ years and have probably had 3 late payments. Two of which was the fact that I never received the initial bill for a new credit card.

    • Glen Craig says:

      I set up reminders for many of my bills as well. For some I have email/text alerts set up while for a couple of others I set up Google Calendar to send an alert the same time every month.

  2. I’m good about catching changes in payment amounts, but when a payment disappears entirely, I occasionally don’t notice. One of our charity donations disappeared when our old credit card expired, and I didn’t notice for 6 months that it wasn’t on our monthly credit card bill! A missing payment is much harder to notice than an erroneous one.

  3. We have virtually everything automated. The convenience trumps everything for us and it does save us time. We look at all of our bills, either via paper or e-statements, which allows us to catch anything wrong or something that warrants attention.

    • Glen Craig says:

      I think that’s an important aspect – actually following up and checking your statements. It can’t be set it and forget it, you need to see what’s happening with your bills.

  4. Before our retirement, we set our savings on auto-pilot, so we would never see the money.

    Nowadays, we do bill-pay, but manually. It’s funny how companies just “make mistakes” when they have access to your account. I just think of it as helping them out when I remove that possibility. I’m just helpful that way. Now where did I leave my cape? Dang! Forgot it in the phone booth again! :)

    • Glen Craig says:

      Dang capes!

      It is funny how that works, huh? Some companies are better than others at correcting mistakes but many times the onus is still on you to find it in the first place and work to get it corrected.

      I like setting up savings on auto. Better to not see the money and have it go right to the account.

  5. I automate my mortgage payment and zero interest credit card. Both payments are consistent and I have a definite time frame to pay off the loans.

    • Glen Craig says:

      We automate our cell phone bill because it’s the same every month. I think one time, when we moved into our house, the bill was higher because we were using our cells more often. I still always check the bill though.

  6. Absolutely true about having to double check and not “set it and forget it” (great phrase). There have been multiple errors on mine.

What Do You Think?

*

Free Newsletter to Keep you Free From Broke!Name: Email: We respect your email privacyPowered by AWeber email marketing