How to Automate Your Finances So You Never Have to Think About It

Money problems often have less to do with how you manage your dollars and more to do with whether you follow through.

You intended to save the money you were going to put away in savings, but something came up and you forgot. You intended to pay the entire balance on that credit card when it was due, but the due date passed. That’s where automation comes in. Automation turns your good intentions into action. After you’ve set things up, your money keeps working in your favor – whether or not you remember to help it along.

Here’s how to set up a system that runs in the background, step by step.

Step 1: Direct deposit your paycheck

Your first automated move starts the moment you get paid. With direct deposit, your employer sends your pay straight into your account. Many employers let you split your paycheck, sending part to checking and part straight to savings. Send a set amount to savings before the rest reaches your spending account. What you don’t see, you won’t miss.

Step 2: Put your bills on autopay

Late fees and missed payments are completely avoidable. Use automatic payments for all your fixed bills, including rent, mortgage, utilities, insurance, telephone, and loan payments. Automatic payments clearly benefit most people who receive the same bills every month. But there are some bills that vary from month to month –, like credit cards, or some utilities — you may wish to automate at least the minimum payment of these types of accounts, and then later decide how much to pay manually based on your current financial situation.

Step 3: Treat savings like a bill

Automatically moving a set amount from checking to savings right after payday makes it far more likely you’ll build an emergency fund. When you treat savings like a bill instead of whatever’s left over, your odds go way up. Even a small start, $25 a paycheck, is worth bumping up over time.

Step 4: Automate your investing

An automated investment system takes the emotion out of long-term investing. You can use an employer-sponsored retirement plan like a 401(k) and have your employer move a set percentage of each paycheck into your retirement account. Also, you can create an automatic monthly transfer into an Individual Retirement Account (IRA) or a brokerage account for the same purpose. Investing a steady amount each month means you don’t have to watch the market or worry about its ups and downs.

Give your checking account a cushion first

It helps to have some room in your checking account before turning on any kind of automation. The one way the system can let you down is when a due date and a deposit don’t line up. Say a bill comes in on the third and the check doesn’t arrive until the fifth; suddenly there’s an overdraft charge and the vendor has you down for a non-payment. A reserve equal to a month’s worth of regular bills will see you through that sort of thing. If that isn’t feasible at the moment, a couple of hundred to put aside will do in a pinch and grow over time. It’s enough to handle what most people run into.

Make sure to set up low balance alerts while you’re at it; that way the bank will put in a text if your account goes below a certain figure. Should you be looking to put some savings with an online institution for a more competitive rate, verify they have federal deposit insurance on board. It’s a safeguard for as much as $250,000 per depositor, per insured bank, for each ownership category, and well in excess of what’s usually left in a checking or savings account.

Automate the debt payoff, not just the minimum

Mostly, people will set up an auto-pay for the minimum and call it a day. It’s a good thing to have in place to safeguard your credit, but don’t mistake it for a way to get out of debt. The better approach is to let the minimum run on its own for each card and put in another automatic transfer on payday for the one you’re chipping away at. Let that be where the extra funds go. It’s the only part of the equation that makes a dent, and since it happens without any input from you, there’s no need to make a case for it when the month is winding down.

Once you have a card in the clear, don’t let that money just go back into your regular outgo. Put it all toward the following debt on your to-do list right then and there. In a way, it’s the snowball effect, only one that takes care of itself. With every balance you put to rest, the next payment swells on its own; no need to come up with any extra cash.

Let your retirement contributions climb without you

It’s common to find an automatic escalation feature in a workplace retirement plan. With it, the contribution rate goes up by a point or so every year on a day of your choosing. You only have to set it in motion and from then on the savings will build with no effort on your part. The way to do it well is to time the hike for when you get your raise. That way the additional amount is taken from funds you wouldn’t have had in the first place and your net pay is hardly affected.

For those without an auto-escalation feature, set a standing appointment for the first week of January to make the adjustment yourself. You can be in and out of your account in two minutes. In the long run, that once-a-year effort will do more for you than all the other advice here put together.

What you should not put on autopay

There are some places where you don’t want to set it and forget it, particularly when the numbers can be fickle or a mistake is easy to miss. Medical bills come to mind; they have a way of being off, and you should make a habit of going over them line by line before parting with any money. The same is true for a utility bill that has run up during a hot spell, or an account on a deal that’s about to run its course. Let those go unattended and the increase in cost will happen without so much as a blip on your radar.

One warning about subscriptions. With the way automation works, an oversight can be costly; that’s the story behind why you’re still on the hook for a trio of streaming accounts that have been left to gather dust for twelve months. The best approach is to put them on a card you go over each month, not one that’s linked to your checking. Make no mistake: if you set up auto-renewal, you’re making a choice to keep the charges coming until you make a point of ending them.

Twenty minutes a quarter keeps it honest

Even with a system on autopilot, it’s worth taking a moment to put your eyes on it. Put in twenty minutes or so every quarter to see what has been left to its own devices. Make sure the transfers have all gone through and no payments have been rejected. Look for an old card number on a bill, a rate that has been adjusted in your absence, or any chance of being billed for the same thing twice. It isn’t much of a chore, but it’s enough to head off most issues.

It’s worth going back over the entire arrangement whenever there’s a shift in your income. The figures you put in place were for a different kind of bottom line, and they may not be right for what you’re making now. With a raise, for instance, you can up the amount being put aside before it gets put to other uses. If the opposite happens, it’s better to scale back the transfers proactively than to have them bounce because of a shortfall.

When automation breaks, and it will

The usual culprits are ordinary ones. An old card on file is no longer good for anything, a transfer comes back for some reason, or you make the move to a new bank and lose track of what’s still being sent to the old one. Then there’s the matter of an employer overhauling their payroll and a split deposit ending up in a single account by default. As long as they’re put right in the month they occur, they’re hardly worth making a fuss over.

There’s no better way to put a safeguard in place than with a one-pager. Whether it’s a sheet of paper or a note on the phone, have it all there: the things that run themselves, the accounts they’re tied to and when you can expect them to hit. It isn’t a chore anyone looks forward to, but when the time comes for another to take over your books, or if an issue arises, it’s the one thing you’ll be thankful for.

Photo by Vitaly Gariev on Unsplash