Have you ever forgotten to pay a bill or hesitated to move some money into your savings account?
One of the hardest things about money is the act of managing it. On the surface, tasks like writing a check or periodically making some investments may seem pretty routine. But they can easily get lost in the shuffle of everyday life once priorities from work or family take precedence.
That’s why for the best chances of success, you need to establish a system for your finances that operates with as little intervention as possible. How? By removing yourself from the equation and automating every transaction available. Here are five areas where this can be implemented so that you can spend your time focusing on what’s really important in life.
Bills
As it’s often said in sports, a good offense is the best defense. This policy also works great when it comes to paying your bills – having the payment pre-scheduled ahead of time. Not only does it help keep your account in good standing, but it can also keep your credit rating in good standing by not getting reported to any of the major bureaus.
Thankfully, nearly every service provider makes it incredibly easy to set up automated payments. Usually, this involves little more than logging into your mobile phone or utility account, entering your bank information, and then agreeing to regular automatic payments every month.
Even if one of your providers doesn’t have this payment option, most major banks and credit unions offer a bill-paying service. This is a feature where you authorize the financial institution to automatically send electronic payments or physical checks directly to the service provider.
Bonus tip: If you’re good with credit cards and like to regularly rack up rewards points, then it may be good to use your credit card as the payment option for as many of your bills as possible. Since you were going to make these payments anyway, why not get rewarded with cash back, gift cards, or travel points?
Just be sure to check if the provider charges a fee for using a credit card. Some have started tacking on an extra 3% or so, negating the credit card’s rewards benefit. In this situation, have the automated payment come from a free option like your checking account instead.
Retirement
Today’s modern retirement plans make it easier than ever to be mechanical about saving for the future. After establishing a relatively diverse portfolio of investments, the name of the game is to contribute as much to your plan as possible.
For most working Americans, this will involve a defined contribution plan like 401(k), 403(b), or 457. With each of these plans, all that’s needed is a form or electronic authorization to automatically pull the money out of every paycheck before your earnings hit your bank account. This can be a huge tax saving because the more you contribute, the lower your taxable income and resulting tax bill will be.
401(k)s can also be extra awesome if your employer offers matching contributions. This is where they also contribute anywhere from $0.25 to $1 for every dollar you save. Again, the more you save, the more matching contributions you also earn – automatically.
At the same time, you may also wish to start a Roth IRA. IRAs are similar to workplace retirement plans except they are set up by you (i.e., not your employer) with a financial institution of your choice. To make things easy, nearly every provider will allow you to set up regular automatic contributions to your IRA. Just be sure not to save more than the IRS contribution limits for the year.
Emergency Savings
You never know when an unplanned repair or sneaky bill is coming your way. But they happen all the time, and for that reason, it’s highly recommended that every household have at least 3 to 6 months’ worth of living expenses on hand in cash. This will help protect you from having to turn to high-interest debt options like credit cards and personal loans.
In theory, you could keep this extra money inside your regular checking account. But that may prove to be too tempting for some people to spend it. A better approach would be to create a completely separate account – preferably one that earns high interest so that you’re making money while it sits idle.
As with most financial accounts, setting up regular contributions is easy. Simply log in to your account, designate the amount and frequency, and then let the money flow from one bucket to the other.
Investment Accounts
Depending on how you handle your finances, you may wish to have some investments outside of your long-term retirement accounts. Those assets won’t be tax-advantaged the same way that a 401(k) or Roth IRA will be, they also don’t have the same restrictions on withdrawals – so that can be advantageous.
Just like your bank and retirement accounts, investment accounts can be set up to receive automatic contributions. Again, set the frequency and amount, and the brokerage will take care of the rest.
Bonus tip: If you invest in assets that pay dividends, then you’ll have to dictate to your brokerage what to do with those payments. An easy and automatic way to put them to good use is to use a DRIP (dividend reinvestment plan) strategy. This is essentially where you use the dividend payments to buy even more shares of securities, which in turn increases the amount of dividends you’ll receive. The longer this process continues, the more your portfolio will snowball in size!
Budget
As you’ve probably noticed by now, none of the above automation techniques will be possible unless you do one very important thing: ensure you have enough money coming in and available in your bank account to fund each of these activities!
For that reason, it’s absolutely critical that you budget your money. A budget is just a plan for not spending more money than you earn. It takes into consideration both your expenses as well as other financial goals you may be working towards such as those we’ve highlighted above (i.e., retirement, emergency savings, and investing).
Thankfully, there are even automation tools that can help you to better manage your budget. Apps like Buxfer collect all of your transactions and summarize them into one central location for review. This can help reveal spending trends or other areas where potential improvements could be made.
No matter how you decide to handle your budget, what’s important is that you’re actively always trying to cut out the things that don’t add value to your life. Instead, put your money to good use doing the things that bring you joy. After all, the whole point of automating your finances is to free your time up to worry less about money, not more.
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