Last Updated on September 13, 2024
With all work you need to do in a day, dealing with money can be incredibly intimidating and difficult to manage. It requires a lot of willpower to eliminate temptation and actually take the time to sit down and deal with numbers.
However, with finance automation, you can turn this into a painless task.
If you’d like to make saving money, reaching financial goals, or paying off debts a walk in the park rather than a monthly chore, read on.
Finance Automation: Defined and Applied
Financial automation is the process of automating monetary tasks, such as bill payments, retirement contributions, and even charitable donations.
When applied to personal finance, this process can have a number of benefits.
For one, it can help you save time by doing the work for you, allowing you to devote that newly-found free time to other tasks, like spending time with family and investing in business. It can also help you save money by taking the process out of your hands, as well as pay off debts efficiently and on time.
However, it does come with a few precautions as well.
Automating your financial processes can make you lax with your money, since you’re letting the system do all the work for you. Keep in mind that having an automated financial process does not mean that you can forget about what’s happening with your money. You still have to be mindful about it, as these processes need to be regularly updated to adapt to your needs and goals.
Your Four-Step Guide To Financial Automation
Overall, the goal of finance automation is to simplify the management of your money by reducing the amount of time you spend to manually accomplish certain tasks. This would then lower the chances that you’ll forget due dates, as well as remove financial decisions from your list of things to worry about.
Here are four ways you can make dealing with your personal finances easier through automation.
1) Sign Up for Accounts that Will Let You Automate
Before anything, you will need to have accounts that allow you to automate in the first place. Luckily, most banks and financial institutions have the technology for automation.
From here, you should think about what your financial goals are to help you find and open the most appropriate accounts.
If you’re looking to save money, you should open a primary account at a bank that will allow automatic transfers, so it can deduct your savings as soon as your income comes in. If you’re looking to pay off debts, you should look into accounts that can help ease the burden, such as credit cards with favorable balance transfer terms.
You need to evaluate your lifestyle to find the accounts that can best work with you. However, do be careful with the number of accounts that you have. Since one of the goals of automation is to make your personal finance easier, you wouldn’t want to open too many accounts that you may, in the end, lose track of.
2) Automate Transfers to Your Savings Account
Once you’ve set up your main account (or accounts, depending on your goals or needs), one of the first ways you can do to automate your personal finances is to make your savings automatic through set bank transfers.
If you find saving money difficult to handle every time your paycheck comes in, automation can make this decision for you.
In fact, a study by the National Bureau of Economic Research found that automated retirement accounts, such that employees were automatically enrolled versus having them manually enroll, significantly increased contribution rates to nearly 100% from below 40%.
Following this finding, automated savings guarantees that money is put aside before you have the chance to spend it. In addition, this method makes saving the priority—allowing you to map out and easily attain short- and long-term goals, such as setting aside money for a vacation or paying for a long-needed house or car repair.
3) Set Automatic Payments for Bills and Debts
Another way you can automate your finances is to apply it to your expenses.
After setting up the necessary accounts, settling bill and debt payments can be fairly easy. You’ll rarely miss a payment and be charged late fees, accruing interests on top of your base debt. You also won’t have to worry about scheduling when to make your payments.
However, you would still need to look over your expenses every once in a while, especially the recurring ones.
Although your bills will get paid on time, it’s also possible to neglect recurring payments or subscriptions for services you rarely use. You might also miss billing errors that are adding up to your monthly payments.
Unlike automating your savings, automating your expense payments should not be an “out of sight, out of mind” sort of thing, even if it’s more convenient.
4) Make Your Retirement Contributions Automatic
Finally, another way to apply finance automation to your personal finances is to make your retirement contributions automatic.
A recent survey found that while 18% of its respondents were “Very Confident” with how they prepared financially for retirement, the majority were not. In fact, 28% felt “Not Too Confident” and a startling 16% felt “Not at All Confident.”
Given the nature of retirement saving, many people make the mistakes of either not starting early or not saving enough over time. Sometimes, they make both mistakes, and end up having to work well past their planned retirement age or live below their desired lifestyle.
Similar to automating your savings, making your retirement contributions automatic ensures that: first, money is being invested into your retirement fund with each payment period; and second, that you are investing enough each time to be able to live comfortably during your retirement.
Make Your Money Work For You
Most of the time, when people say “make your money work for you!”, they’re referring to investing. However, you can also make your money work for you by automating the processes that govern your finances.
Remember these four ways of automating your personal finances when deciding how best to manage your money and, consequently, make your life easier.
