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.)
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
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.
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:
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.
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.
Automating your finances is a powerful tool to make sure you are taking care of your money. But one of the first things you want to do is simplify your financial accounts. I’m talking about savings and checking accounts, investing accounts, credit cards…anywhere your money is going. When you have less accounts it’s easier to streamline your automating.
Choose What to Automate
One great thing about automating your finances is it’s not all or nothing. You can decide what parts you want automated and what works best for you. These are some of the things I automate: cell phone bill (automatically paid by me credit card); Netflix (paid by credit card); savings (I have a set amount taken out of checking every week); student loan (taken out of checking); and my life insurance payments (also taken out of checking).
I know there’s more I can do, and I’m looking into ways to make our finances more efficient.
Here are some tools/places that can help you with automating your finances:
- Budgeting: Mint, You Need a Budget, Quicken
- Credit Score/History: Credit Karma, Quizzle, Credit Sesame
- Debt: Ready for Zero
- Banking: Capital One 360, Ally, Simple
- Investing: Betterment, Personal Capital
That’s just a small sample. Most banks, credit cards, and brokerages allow for some kind of automation. And remember your employer will probably allow you to have parts of your paycheck sent to different accounts, you just need to check with HR.
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?
Here’s a video we did on the Money Mastermind Show about automating your finances. Give it a watch!
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.
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.
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.
I can see how easy that would be to miss.
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.
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.
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! 🙂
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.
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.
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.
Absolutely true about having to double check and not “set it and forget it” (great phrase). There have been multiple errors on mine.
What kinds of errors have you found (so other people know what to look out for)?
I automate the payments with the fixed amounts — such as the mortgage. Others I pay online manually. I’ve experienced the water leak and the $700 bill that followed…if I didn’t catch that it could have led to even more problems.
Automating the fixed bills is an easy way to start automating. Ouch on the water bill. Glad to hear you caught it before it got worse.
I think the safe advice would be to only automate large payments that do not vary. You don’t want to automate things like water, electricity, cable (they like changing the amounts quite frequently). The normal person will just accept the fluctuations in their bank account without realizing that bill X was 50% higher than normal – which in the case of electricity, that can be as little as $30, but on a percentage basis it is obviously very significant.
Yeah Jay, I’m a little wary of automating variable expenses. But if you have the discipline to stay on top of your bills and you make sure you look at them every month then automating variable bills can be very effective.
I automated my bills that are fixed, period. That would be the mortgage, Betterment, transfers to savings, the newspaper – and that’s about it. Everything else, I want to review before they get paid (but I pay them all on-line).
I get my pension payments on the last business day of each month. So, I have my bills set to come due the first week of the month. Around the first of each month, I sit down and spend about a half hour on-line looking at each statement and scheduling the payments. That way, I’m satisfied everything is good before they get paid. It doesn’t take long, and I feel more “in control” that way.
For what it’s worth, I have had a few unpleasant surprises from my cell phone provider over the years – not often, but every now and then – and I would much rather review the statement and have the option to call and question them BEFORE they take money from my bank account.
You do realize that when you allow a company to withdraw funds automaticly from your account, they are the ones who must cancel the automatic withdrawals? This can make disputes over automated charges difficult for you to win since they can withdraw the amount regardless of your protest. I never use a debit card to pay bills and I never give companies access to my money.