The NY Times has has an interesting article questioning how much of your finances you should automate (How Much of Your Finances Should You Automate?). In it, the author looks at the methods of some popular personal finance writers such as Ramit Sethi of I Will Teat You To Be Rich, Adam Baker of Man Vs Debt, and Jim Wang at Bargaineering.
The Argument for Automating Your Finances
Ramit Sethi’s technique is to automate everything he can from savings to Netflix to credit cards to things like rent. The reasoning here is psychology. As much as we would like to say we’ll take car of our finances, when it comes down to actually doing it we tend to not follow through. I can think of many times I said I would save but by the end of the month the money flowed out, the excuses piled on, and the savings stayed bare.
Automating, once set up, can also take the worry out of your finances. You know bills are getting taken care of. You know you have money going into savings and investing. You have more time to put your efforts into the rest of your life (like finding ways to make more money).
This isn’t to say automating is all “set it and forget it.” Ramit admits that he’ll make sure his checking can cover expenses when he receives alerts that a bill is due.
The Argument Against Automating Your Finances
On the other spectrum is Adam Baker who wrote the eBook Unautomate Your Finances (great read, by the way!). Adam argues that when your finances are automated it’s too easy to keep up bad spending. With automation, you aren’t conscious of your spending. Psychology is in play in Adam’s argument as well: When your finances are completely automated you don’t pay as much attention to your accounts. When you have extra money you will likely not pay extra towards debt since the payments are out of sight and out of mind (and the extra money can likely turn into more spending).
Jim Wang adds that automating could make you lazy with your finances. You may not check up on accounts like your 401(k) as often since it automatically gets contributed to. This can be a huge mistake long term, if you aren’t looking to re-balance your portfolio when needed or add to your account when you get raises. You can also get penalized if your checking account doesn’t have the funds to cover your automated billing which can cause more trouble than it’s worth.
The Place Right In The Middle
Where do I fall in this debate? I agree with both parties. I like to have a bill like Netflix automated since I know the charge will be the same every month. We also automate some of our savings so we know no matter what we have a minimum being saved.
That said, I don’t like to automate things like credit cards or anything that could change month to month. I want to look at these bills and see what the charges are before I pay them to a) make sure the charges are correct; and b) see where my money is going every month. I agree with Adam in that automating can make you less conscious of your spending.
Overall I think you need to find what works for you in automating your finances. Automating some aspects can save you time and effort but you need to also stay conscious of your spending to see where your money is going and make sure your charges and payments are correct.