How To Automate Your Finances

One of the challenges of putting our financial goals into practice is that we not are motivated to stick with strategy over a long time.  We can break down long term financial goals into annual or monthly goals but we have a hard time following through. Life gets in the way of things, and we forget to contribute to the emergency account or increase our 401(k) contribution as we promised ourselves.

But if you can automate your finances, you are guaranteed to pay bills on time, contribute to your investment account, and make progress on your path to reach your goals.

Direct Deposit Paycheck

Most employers offer the option to deposit your paycheck automatically into your bank account.  Hopefully, you are doing that.  But there is an opportunity to take this one step further.  Once you get the paycheck, you may transfer some money to another checking account where you save money for emergencies.  You can ask your employer deposit your paycheck in two checking accounts – 70% in one checking account, and 30% in another checking account.

Automate Bill Payments

Automate your regular monthly expenses.  This includes paying your mortgage, credit card bills, utility, lawn care, etc.  All these providers offer the option to pay automatically when the payment is due.  While credit card companies allow you to set it up for free, some utilities may charge fees for automatic payments. Consider whether the cost is worth paying to keep them on automatic payments.

Use credit cards to pay bills for cell phones, home security, etc. automatically every month. Always check your credit card statements at the end of every month to ensure that you are being charged the correct amount.  Unfortunately, it’s almost impossible to automate this part.

Automate Investments

Set up your investment accounts such as brokerage and mutual funds accounts, and 529 plans to automatically withdraw a fixed amount from your checking account.  This way, your money is invested every month.  You will benefit from dollar-cost averaging.  Since you are investing the same amount every month, if the stock market is not doing well, you will buy more shares.  If the market is going up, you will buy fewer shares.

Auto Increase 401(k) Contributions

Many employers allow you auto-increase your 401(k) contribution annually. If you set up your increase to take effect when you typically get a pay raise, you won’t even know that you are contributing more.

Check Your Tax Withholding

Check your tax withholding every year, and when circumstances change.  With correct tax withholding, you won’t owe the IRS any money at the end of the year.  You will also not be giving IRS an interest-free loan. Your goal should be small to zero refunds from the IRS at the end of the year.

Reinvest Dividends Automatically

Set up your investment accounts such that dividends are reinvested automatically.  Many brokerages don’t charge for reinvesting dividends.  Reinvesting dividends will allow you to compound your money faster.  Understand the tax implications. You may need to pay tax on the dividends you receive.

Collect Rents Electronically

If you are a landlord, ask your tenants to set up electronic payments.  You can then withdraw directly from their bank account every month, instead of getting a check.  You can incentivize them to go electronic by giving them a $5 or $10 discount for paying electronically.

Deposit Checks From Home

Use your bank’s app to deposit checks from home. This is a great time saver if you receive a lot of checks.

Use Apps To Send And Receive Money

Use apps like Venmo and Paypal to send and receive money.  I use Venmo to pay for my son’s tennis coach. It is very convenient.  Once I set it up with my bank account or a debit card, all I do is select the person’s name, type in the amount I would like to send, and the money is transferred immediately.

Bottom Line

Life gets in the way of good intentions.  Automating the finances ensures that you will reach your financial goals.  Take time every month to review your bills for accuracy as you may overlook certain charges if you auto-pay every month.  In addition to saving time, automating finances will keep you on track for financial independence.




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