5 Items You Should Automate ASAP
There are countless money management tips online that may or may not work for you. Some are super hands-on with spreadsheets to help you manually track money going in and out of your checking account, while others are much more simpler.
If you find yourself too busy to get a handle on your budget, a “set it and forget it” approach might be a fit for you. One of the best ways to save money and reach your financial goals is by automating your finances.
Here are the five basic money areas to automate starting today.
1. Your paycheck
Manually taking your paper paycheck to the bank to deposit your hard earned money into your account wastes valuable time and doesn’t set your finances up for efficiency. Many companies offer (and encourage) direct deposit as a means of receiving your earnings.
Aside from the convenience of getting your paycheck digitally, automating your paycheck also kicks off the rest of the automation process. Reach out to your company’s HR department to fill out the direct deposit paperwork if you haven’t already, or if you’ve switched your primary checking account. If you work for yourself, see if your clients are willing to provide direct deposit via ACH.
2. Retirement savings
As soon as your income is set up for direct deposit, you can start focusing on saving toward long-term goals, like retirement. A general rule of thumb is to have retirement income at 80% of your pre-retirement earnings. For example, if your final salary before retiring is $110,000 per year, during retirement you should have built up enough savings to live comfortably on $88,000 annually.
Despite retirement feeling like a far-and-away goal, you can start saving toward it by automating your employer-sponsored 401(k) or IRA now. Setting up your payroll so that it automatically diverts a percentage of your income toward retirement savings accounts helps ensure that you pay your (future) self first. Whether you opt for a tax-deferred 401(k) with an employee match, or choose an IRA as your savings vehicle, it’s important to automate your retirement ASAP.
3. Emergency savings
According to recent data from Bankrate, most households don’t have $1,000 saved up to cover an emergency expense, like an unexpected job loss or major car repair. But if you’re living on a tight budget as it is, it can feel hard to set aside $1,000 in one lump sum.
But by knowing how to automate your finances, you can slowly chip away at a starter rainy day fund. In general, an ideal emergency fund would cover your expenses for up to six months, but really, any savings amount is better than none.
Some employers give you the option to direct a percentage of your paycheck to a second bank account. If you’ve already set up direct deposit to your primary checking account (*high five!*), for example, you can have a fixed amount also direct deposited into your savings account. This minimizes the risk of prematurely spending your money before you can save it.
4. Monthly bills
Knowing how to automate your finances also involves streamlining your monthly expenses. These expenses can include your cell phone and utility bills, ongoing subscriptions, loans, and rent or mortgage payments. You can set up automatic payments through your financial institution of directly through your provider, if they provide the option.
To take this step to the next level, try setting up your bill due dates on the same day, if possible. Doing this allows you to see all of the remaining funds you have left over after your core bills are paid off. If you can’t set your due dates to the same day for whatever reason, using a tool like Mint Bills can help you stay on top of the different due dates using automation.
Automating your recurring expenses not only covers your monthly responsibilities, but has the added benefit of helping you avoid late payment fees which can eat up your available cash.
5. Other short-term goals
By this point, you’ve covered your basic expenses, and set your savings up for the long-term (i.e. retirement) and life’s many unexpected surprises (thanks, emergency fund)! Now, it’s time to work toward your short-term goals, like saving toward a down payment on your first home, setting aside money for a new laptop, or even planning for a much-deserved vacation.
With separate goals, you’ll need a separate savings account to track your progress toward each goal. You’ll want to avoid mixing your car down payment savings fund with your emergency savings fund, for example.
To help you clearly manage these different goals, look into a sub-savings account. Some banks and credit unions allow you to rename your savings account, like “2019 Costa Rica Vacation”, which helps you mentally stay connected to your goal. You can start funneling 5% (or whatever percentage you feel comfortable with) of your remaining checking account funds toward a few short-term savings goals.
This is a good way to also anticipate and work toward annual expenses, like your car registration or taxes. Just make sure you’re not paying fees on your sub-savings accounts — there are a few savings accounts that don’t incur a monthly maintenance fee, like the Capital One 360 Savings account.
Learning how to automate your finances empowers you to look at your finances with a bird’s-eye perspective. Mainly, it allows you to prioritize important recurring expenses, like your mortgage payment while also automatically creating opportunities to save for what’s important to you.
If you’d like guidance and support to help you hit your money goals, schedule a brief consult with your Financial Trainer today.