#110 | Automating your finances to create better financial habits

August 16, 2021

Episode Summary:

 

In this week’s episode, we talk about using automation to improve your finances and create strong financial habits.  We explain why automation can be so impactful and then talk through the specific ways you can automate your finances and some extra tips and tricks to make the most of automation.  You can automate your savings, investments, paying your bills, tracking your expenses, tracking your net worth, and much more.  Automation saves you time, creates positive habits, and pushes you to increase your savings and investing goals.  There are really no downsides to automating your finances if you do it thoughtfully and keep an eye on things.  

 

Episode Notes:

 

Automating your finances can have a positive impact on your finances.  It can help you put certain tactics and behaviors on autopilot, creating simple habits that take almost no thought each week or month.  The less you have to think about remembering to do something, the better chance you’ll actually do it.  

 

The benefits of automating your finances include:

    • It saves you time to focus on other higher-thought activities, especially those activities related to your finances.
    • It puts good financial behaviors on autopilot, increasing the chance that you’ll make positive money choices.  The less you have to think about it, the better you can do.  You’re essentially creating better habits with the click of a button!  We wish all habit-building was this simple.
    • It allows you to pay yourself first.  When you get your money to where it needs to be quick, there’s less of a chance you’ll have a chance to do something “bad” with it.  
    • It avoids human error on forgetting to do something or pay something.  Can help you avoid late fees or lost opportunity cost from forgetting to pay a bill on time.

Specifics ways you can automate your finances:

    • Automate your savings.  You can set up automatic transfers from your direct deposit paycheck with your company or do it within your bank account online login.  For example, setup for $250 to be moved from your checking account to your savings account on the 1st and 15th of each month.  We suggest you increase your automated transfer to savings and investment accounts over time, even if it’s just small increments.  Small steps add up and build momentum.
    • Automate your investing.  Same as with savings, you can automate transfers of money to your investment accounts and actual purchases of investments.  If you know this will help you, consider moving your investments to a platform that allows for automatic investing.  For example, platforms like Wealthfront and M1 have simple and effective auto-investing features and capabilities. 
    • Setup a 401-k auto-increase.  With some 401-k programs, you can set an increase to start on a certain date, which can help you hit an increased goal and perhaps not even remember or notice the impact.  
    • Automate paying your bills.  You can sign-up for automatic payments on anything from credit cards to electric bills.  I prefer this as it saves me a ton of time and ensures I never miss a bill.  
    • Automate tracking your expenses. Tools like Intuit’s Mint or YNAB (you need a budget) can help you automate your expense tracking vs. doing it manually.  Mike still does his manually thorough he might be in the minority here!  Maggie has done it manually but now uses Mint and then spends some time reviewing, cleaning up, and summarizing the data from Mint.
    • Automate tracking your net worth.  We’re old school on net worth tracking, so we like to do this in excel, but do what works for you. We care more that you track your net worth and less about the how.  There are popular apps like Personal Capital that allow you to capture your net worth easily, and also, many investment apps like Wealthfront let you link in all of your accounts and easily see your total net worth. Unfortunately, these apps don’t do a great job at historical tracking. In addition, they often have issues with one account or a piece of real estate, so I like using these apps to capture all of your accounts faster but still manually tracking in an excel or google sheet each month.  
    • Automate notifications about unnecessary fees.  Apps like personal capital or Mint are free and helpful in that they provide notifications on overdraft fees, late fees, and additional fees you want to avoid.  If you catch an issue like this early, you can quickly fix whatever caused it, and you can often call the financial institution and request they removed the fee.
    • When in doubt, Siri can do everything and use her to improve your finances too!  Siri is pretty amazing.  You can hold down a button on your iPhone and say, “Siri, remind me on the 1st of every month to increase my savings rate by 10%,” or “Siri, remind me on the 1st of every month to track my net worth.” I am less familiar with Android devices, but I imagine they have some similar features and functionality.  You can also check out our 2021 financial checklist for a set of things you might want to ask Siri to remind you to do.  

As you start to automate your finances, keep these additional tips in mind:

  • You still need to keep an eye on things; this will save you a lot of time in between.  
  • Check all of your account settings and see what can be automated.  Don’t assume your account or system doesn’t allow automation.  Login to your account and browse around, call customer service and ask, chat customer service and ask, google the company or service name and automation.  Sometimes, you have to get into the system and start a transaction to see the various automation settings and options.  You may be surprised by the sophistication of what is allowed.
  • Consider switching accounts to ones that offer automation.  It’s a meaningful feature that’s worth switching accounts over.  
  • This is safe and low risk.  In today’s modern world, it is very safe to set things up this way.  There’s a risk with anything, but this is a very low-risk area.  
  • This isn’t a forever setting.  You can adjust your settings and approaches anytime.   
  • The more of a cushion you have in your accounts, the easier it is to automate things. However, if you’re living paycheck to paycheck, be very cautious about automating things as you could mistime things, and your huge credit card bill gets paid two days before your paycheck comes in.  

 

Top 3 takeaways:

  1. Automation can have a positive impact on your finances.
  2. It’s simple and takes only a few minutes to set up.  
  3. You should get started today!  Pick at least one account that’s not already automated, and get started!

 

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