Want a really easy way to get better at money? Pay off debt? Save money? Build wealth?

AUTOMATE!

It turns out that the best way to accomplish these goals is to sidestep human nature. Our brains aren’t wired to prepare for events far off in the future because we have more pressing concerns in the here and now. As a result of this aversion to long term planning, we can develop money habits along the way that do not support our future selves. Being the imperfect humans we are, we get stuck in our bad money habits, and bad habits are notoriously hard to break.

Examples of bad money habits:

  • Not paying your bills on time
  • Buying on impulse
  • Putting off saving for retirement
  • Raiding your savings on a regular basis
  • Trying to time the stock market

Think about the actions we take every single day that take hardly any thought at all. Brushing your teeth. Reading an article. Taking a shower. Driving the same route to and from work. There was a point in time when you didn’t know how to perform these activities without having to first put in some significant thought and effort. Have you ever seen how terribly toddlers brush their own teeth?!?

But after some practice, an activity that once required conscious thought now becomes a mindless activity that requires barely any effort. Our brains have learned to automate these actions so that we can reserve our mental energy for other tasks.

Well, guess what? We can automate our finances to make our lives easier, too. Even better, it doesn’t require practice to get good at financial automation! It just requires that you make the commitment to put in a little bit of time to set it up.

In fact, automation is virtually a MUST in today’s world. Think of all the different places we keep our money: brick and mortar banks, online banks, brokerage firms, retirement accounts, 529 college savings plans. We also have a seemingly endless list of bills that we need to keep track of. It’s hard to be on top of it all as we take on more financial obligations, especially in the midst of busy careers and busy lives outside of work. Building automation into your financial life allows you to streamline your finances, saving time and money in the process.

Below are 6 ways that you can automate your finances to make your financial life easier. Your ultimate goal should be to automate as many areas as possible.

AUTOMATE YOUR PAYCHECK- SET UP DIRECT DEPOSIT

I’m old enough to remember physically going to the bank to deposit my paychecks biweekly. The lines were long and the pay was small.
Direct deposit would have at least made the process easier.

Setting up a direct deposit that automatically goes into your checking account is now the norm. However, it’s worth mentioning in case you have other streams of income that are not being optimized using a direct deposit system.

Your checking account is the main “hub” where your money will be flowing in AND flowing out on a regular basis, so make sure that you understand when your paycheck is deposited, how much is getting deposited and how much will need to be paid out from this account.

A quick conversation with your employer or human resources will get a direct deposit set up in no time.

AUTOMATE YOUR SAVINGS

Pay yourself first. This is a cardinal rule when it comes to managing your cash flow and building wealth. It’s the cornerstone of achieving financial independence.

Why? Your savings rate is what will keep you from getting stuck in the dreaded paycheck to paycheck (or even worse, going into debt) lifestyle.

Paying yourself first does NOT mean that you stick your money in a savings account, only to “rob” yourself on a regular basis to pay for things that should have already been accounted for in your budget. Paying yourself first means that you’re putting money away for specific financial goals, such as saving up for an emergency fund, a wedding, travel, a down payment, a baby, a car . Constantly dipping into your savings accounts for everyday expenses means that you’re not budgeting properly.

The beauty of paying yourself first is that it’s perfect for those that are anti-budget. Theoretically, as long as you’re paying yourself enough (according to the 50/30/20 budget rule, 20% of your take-home pay should be reserved for savings), then you won’t need to worry about how to spend the rest of your money. The key is to be consistent with paying yourself first, staying away from accumulating additional debt, and avoiding bad investments that either do not produce enough returns or actually produce negative returns over the long run.

Paying yourself first is a form of self-respect. It’s acknowledging that you have sacrificed a lot to get to where you are now, so don’t lose your chance to make this smart money move. It’s one of the best forms of self-care that you can give to yourself.




AUTOMATE YOUR RETIREMENT ACCOUNT CONTRIBUTIONS

As noted in this priority list of whether to pay off debt or invest, investing in your workplace retirement account should rank pretty high on your priority list.

Before your paycheck even hits your checking account, you should have your workplace deduct your retirement contribution. Your take-home pay already takes your taxes into account, so think of your retirement contribution as a “good tax” that is being used to take care of your future, retired self. The fact that you’re also getting tax benefits is a huge bonus to contributing to your retirement account.

Your spending will need to automatically adjust to your smaller take home pay. Take it slow by contributing a small percentage to start (if your company is offering a match, then up to the match as a minimum). Slowly increase your contributions in order to take full advantage of this tax-deferred space so that your spending can adjust accordingly. To be honest, many people don’t even notice the change if they are already spending within their means.

Again, contact your employer or HR to get the details regarding your workplace retirement options and setting up automatic deductions.

When it comes to your individual retirement accounts, such as your Roth IRA or traditional IRA, you can link your checking account to your IRA and automate your contributions completely online.

Although not a retirement plan, saving for college (such as a 529 plan) is another long term investment that can also be set up as an automatic contribution.

AUTOMATE YOUR ASSET ALLOCATION

When you invest, your asset allocation (mix of assets, such as stocks and bonds) should change over time. You want to focus on having a greater percentage of stocks versus bonds early in your investing career since your time horizon is long, which is better suited to absorb market volatility. However, as you approach retirement, you’ll want to get more conservative with your investments and increase the bond/fixed income portion of your investment portfolio .

The process of adjusting your asset allocation is called rebalancing. Let’s say you have an 80/20 stocks to bonds portfolio. You want to rebalance this to a 70/30 portfolio because you want a more conservative asset allocation. You would sell off 10% of your stocks and use this to buy bonds. Without rebalancing on a regular basis, these percentages will start to drift, and you’ll end up with a portfolio that will not have the proper asset allocation according to your timeline.  

You can certainly choose to DIY this and rebalance on your own. However, there are also ways to automate rebalancing.

  1. Invest in a Target Date Fund: These are very popular mutual fund options in retirement accounts. All you need to do is pick ONE target date fund that matches with your projected retirement year. Within this fund is an asset allocation that is determined by your retirement date. The fund will then rebalance on its own with no further action on your part. The “cost” of these balanced funds is the slightly higher expense ratio compared to individual mutual funds within the target date fund.
  2. Use a roboadvisor: These are services offered by firms that automatically rebalance your portfolio for you when you allow them to manage your investment portfolio. Popular roboadvisors include Betterment and Wealthfront. You will also find roboadvisors at traditional brokerage firms, such as Vanguard and Charles Schwab. The roboadvisor management fee usually ranges from 0.25-0.5%, which is lower than the standard 1% assets under management (AUM) fee charged by a financial advisor. These small percentages don’t seem like a lot, but these fees can add up very quickly.

AUTOMATE YOUR BILLS

Gone are the days where your only option was to sit at your dining room table, write out your checks, and mail them out.

With online banking, you can pay virtually any bill online. Not only that, you can schedule your payments. With a minimal amount of effort, you can have your regular bills paid on time, every single month.

You can easily automate your bills the following ways:

  • Bill Pay: Your online bank will have a Bill Pay option, where you can add a biller and schedule payments. You will see when your payment is expected to be delivered so that you can ensure it won’t be late.
  • Autodeduct: You can have your bills automatically deducted from your checking account. This will require that you have enough of a cushion in your checking account so that you’re not in danger of incurring overdraft fees.
  • Autopay using your credit card: If you want to maximize your credit card points, you can choose to autopay your bills with your credit card. This method is only recommended for responsible credit card owners who always pay the full balance on their credit card bills. If you have credit card debt or have issues with your credit card use, do not use this method.

AUTOMATE USING APPS

There is an app for pretty much anything, including managing your money. In addition to apps that are affiliated with your financial institutions (bank, investment accounts), you can also use apps that are specifically designed to help you with money management.

Here are some popular apps that receive high marks from users:

  • Mint: This app is designed to link up all of your accounts and track your expenses. You can build a budget and also get a bird’s eye view of your investments if you link your Mint account with your investment accounts. Mint is a free service.
  • YNAB: This app is another budgeting app, but it focuses on the concept of zero-based budgeting. In zero-based budgeting, every dollar has a job, so it forces you to spend and allocate your money in an intentional way. Many people have sworn that using this app has fundamentally changed their financial lives for the better. YNAB offers an initial free trial but then starts charging a monthly fee after the trial is over ($7/month at the time of this post).
  • Personal Capital: Personal Capital is a wealth management company that offers a popular net worth tracking tool. After linking up all of your accounts, you’ll have the ability to see all of your accounts in one place with an easy-to-use interface. You can also build a budget with this app. This is a free service, but if you have a high net worth, expect to be getting calls from customer service. They will be asking you if you’d like to use their financial advisory service, which uses the assets under management fee structure.

So if you’re the type of person that loves to analyze your numbers and get pretty granular with your money, these apps are great tools for aggregating your financial information so that you can do this more easily.

CONCLUSION

They say that personal finance is 80% behavioral and 20% knowledge. I am a huge proponent of financial literacy, which accounts for the 20%, but you might as well take advantage of controlling the 80% as much as possible through automation. It’s harder to overspend if you’re automatically saving money. It’s harder to time the market if you have an account that is automatically investing for you. It’s harder to not save enough for retirement if you’re automatically contributing to it.

Use technology and automation to your advantage! These are all systems that you can start right now. After a little time on the front-end to set everything up, you’ll have an automation system that will work for you 24 hours a day, 7 days a week. You will, of course, need to monitor and re-evaluate your plan on a regular basis, but the amount of time and effort will be minimal once this system is up and running. So what are you waiting for?

Have you automated your finances? What sort of tools or methods have you used? Comment below!

6 Comments

  1. The Vetducator on June 6, 2019 at 12:54 pm

    We use all of these and agree completely. Mint is our monthly check-our-spending resource. The only thing not automated is our after-tax investment contributions, which happen each month depending on our savings rate that month.

    • RLDVM on June 7, 2019 at 1:11 am

      That’s great- automation really is a life saver!

  2. Cliff Roberts on June 6, 2019 at 9:48 pm

    Great advice on simplifying life. I’ve been using direct deposit and autopay for many years; it certainly was a relief to not have a monthly bill paying session once the accounts were set up.

    • RLDVM on June 7, 2019 at 1:14 am

      Thanks for stopping by- so good to hear from you! You’re always ahead of the curve! 🙂

  3. Karen on June 8, 2019 at 2:18 pm

    I have automated nearly everything in my finances, from retirement savings, regular bank savings, college savings to bill paying. One thing I would remind people to do is to jot down on a calendar when each of these things comes out of your checking account and try to distribute them between paychecks to avoid leaving your checking too low at times if many come due close together. For example, since my mortgage is the biggest automatic deduction, I have scheduled more of the smaller bills and savings contributions together near the 2nd paycheck of the month.

    • RLDVM on June 9, 2019 at 4:36 pm

      Yes, that’s a great reminder! I love your method of splitting up bigger expenses for one paycheck and smaller expenses/savings for the other. 🙂

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