Life can be challenging enough these days without wondering, “Is that bill due today? Did I already pay it? Do I have enough in my account to cover it?” Happily, you can be freed (at least somewhat) from investing your energies in such thoughts and worries. Automating your finances can not only be a smart money move, saving you on late fees, it may also help alleviate some of the stress surrounding payment deadlines.
Some benefits of finance automation include helping avoid fees, sticking to your monthly budget, and enjoying peace of mind, plain and simple! Figuring out where to start (or whether) to automate personal finances might seem like a lot of work up front, but it can help boost your financial success. And it’s actually quite simple once you dive in.
Here, we’ll spell out the benefits of automating finances, the how-to’s, and some of the smartest applications for this. Read on, and easier financial management may well be your reward.
What Does It Mean to Automate Your Finances?
Automating your finances means you use today’s technology to pre-schedule and pre-approve transfers of your funds. It’s a “set it and forget it” way to pay bills, move money from checking to savings, and even enrich your retirement account.
The beauty of doing so means you can avoid late fees (which many of us, no matter how responsible we are, get hit with sooner or later). You may also become more organized and free your mind to ponder better things. Worrying about when bills are due is so last decade, after all!
What Kind of Accounts Can You Automate?
If you’re wondering what kind of accounts you can automate, you’ll probably like this answer: Almost any kind. Here’s a list of some of the most popular:
• Credit cards
• Rent or mortgage
• Investment accounts
• Loans (car, personal, etc.)
• Savings (from short-term vacation funds to your emergency fund to retirement accounts)
Automating payments not only can spare you late fees and overdraft charges. It helps you streamline the process of staying active and accountable on your accounts (a great way to avoid winding up with credit charge offs). It may also help keep your credit score from getting damaged from missed payments. In fact, payment history contributes 35% to your FICO® score. You want to protect those digits. (Btw, it’s a good idea to scan for common credit report errors on an annual basis, just to make sure nothing is amiss.)
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How Do You Set Up Automating Your Finances?
When it comes to the set-up of automating personal finances, there are a few different techniques to try. Here, we’ll cover some of the most popular options so you can decide what’s right for you, whether it’s one method or a combination.
Option 1: Sign Up for Automatic Debits from Your Creditor
Here’s how this works: Let’s say your wifi provider or landlord of your rental apartment gives you an automatic payment option. Through their payment portal, you’ll set up an auto-pay schedule, connecting the service provider to your bank account. On the agreed-upon date (say, rent is due by the 7th of every month so you select to pay on the 6th), they will automatically deduct the amount from your checking. In some cases, you may be assessed a fee for this privilege; it varies with the provider.
When you opt into this kind of plan, you may be given the opportunity to have the payment charged to a credit card or deducted from a debit account instead of from your bank account. Look carefully, though; you may wind up paying additional fees for this.
Option 2: Set Up Bill Pay with Your Bank
You may find that some creditors don’t offer you this kind of convenience, but your bank may swoop in and help you pay automatically. Many major banks will issue payments on your behalf to a creditor or service provider, which can make your life infinitely easier. No more writing checks every month and digging around for stamps. Check with your bank about what they offer. Typically, they will need the account number and address of the business you are paying. You’ll also need to assess how long this process will take every month; it may not be instantaneous. You’ll want to make sure the money arrives on time and you are not charged any late fees so your credit score doesn’t suffer.
Option 3: Set Up Direct Deposit with Your Employer (if You Have the Option)
An excellent way to automate and fund your personal finances is to set up direct deposit of your paycheck if possible. If you can sign up for this, you’ll know your salary is getting sent to your bank account and when it hits. This will allow you to then schedule your automated payments for the right dates, when your balance is feeling especially flush. And here’s a great hack to know about: Some checking and savings accounts will allow you access to your paycheck funds a day or two early if you sign up for direct deposit with them. That’s another great way to keep abreast of those bills.
Accounts to Consider and Tips to Successfully Automate Your Finances
Now that you have a good grounding in the benefits and how-to’s of automating personal finances, let’s take a closer look at which accounts you might want to put on autopilot. Of course, this will vary with your particular situation and case flow, but here are a few of the ones that can really benefit from automation.
Automate Your Retirement Contributions Through Your Employer
It’s all too easy to think, “I’ll get around to saving for retirement…someday.” Perhaps that’s why the average American household had only $65,000 stashed away for retirement according to a recent survey. That’s probably not enough if your dream is moving to Hawaii at age 65 and spending your days with your toes in the sand.
That’s why learning how to automate your finances for retirement savings can be such a helpful practice. You can authorize your HR or payroll department to automatically whisk away a certain amount of your pre-tax income every paycheck and put it towards retirement. You won’t miss what never hits your checking account, right? Aim for the maximum amount allowed, or at least put in enough to get any company match that’s offered. Otherwise, you’re leaving free money on the table. Experts agree that 10% is a good amount to have deposited into your retirement plan every paycheck.
Automate Your Emergency Fund Account and Your Savings Account
Your emergency fund is another important account to automate, as is your savings. Again, if your salary hits your checking account, you may feel rich and go spend more than you should. By funneling money from your paycheck straight into an emergency fund and/or savings on payday, you may avoid going on shopping sprees.
In terms of emergency funds, it’s wise to have at least a few to several months’ worth of basic living expenses in the bank. That means mortgage or rent, utilities, insurance payments, food, childcare, and other must-have goods and services. With this sum in the bank, you’ll be well prepared if a layoff or other emergency (major car repair or medical expense, say) strikes.
Create a Budget Based on the Balance You Get Paid
Another smart way to automate your money is to look at where your money stands after you deduct your retirement and savings amounts. With the remaining funds, you can plan out ways to budget. There are various techniques out there, like the 50-30-20 rule, among others. Do an online search and see what resonates with you.
A budget will guide your saving and spending; it will let you know exactly how your financial health is tracking, if you’ve saved enough for, say, a down payment for your first home, and how you are doing in terms of other money goals. It will help you handle good vs. bad debt more effectively. All terrific ways to avoid excessive debt and build wealth.
Be Aware of All Your Bill Due Dates
As you automate your finances, do pay careful attention to the due dates on your bills. Of course, you want to pay them by their due date, and you want to allow the right amount of time for transfers between your bank and the accounts to take place. Who wants to see their hard-earned cash get drained by late fees? Or wind up needing a second chance account because they’ve taken on too much debt? While these situations certainly can happen, it’s wise to try to avoid them.
It can be a good move to look at all the places your money will go by autopay with a calendar in front of you. Check when your paycheck hits and when certain bills are due. Some creditors may set your due date in stone; others may have some flexibility. Similarly, some autopay portals may allow you to set the payment date; others may have a specific date on which they will debit funds.
Take a look at all of this and set your auto deductions carefully. You may not want all your payments zooming out of your account on payday if your finances tend to be a bit tight. It can be better to stagger them so you don’t risk overdrawing your account. As you look at your calendar and your funds, see what best suits your lifestyle and money style to keep your account in good shape.
Review Your Bank Account and Bank Statements Often to Stay on Top of Your Transactions
One of the pleasures of automating your finances is that you are freed from thinking and worrying about your money and your bills on a regular basis. But automating your accounts doesn’t mean you can totally put your money out of mind. Daily life involves all kinds of money blips, from treating your bestie to a fancy birthday dinner to (ugh) having fraudulent charges appear on your credit card bill.
Which is our way of saying: Do review your bank account and other statements regularly to make sure everything is as it should be. Also, you want to make sure you are not coming too close to a negative balance or leaving a nice sum of money in checking that could go towards a savings fund or a CD. Check in with your accounts often. Should you check your bank account every day? Not necessarily. A couple of times a week can be a good cadence.
Automating your finances can be a great way to take control of your money and make bill paying and saving so much more convenient. That kind of organization can let you breathe easier when it comes to managing your money and be more successful in meeting your financial goals.
Another way to manage your money better: SoFi Checking and Savings®, a super-convenient option for spending, saving, and earning, all in one great place. If you set up direct deposit, you’ll earn a terrific APY, have access to your paycheck up to two full days early, and you won’t get charged any account fees. What’s more, bill payments can be set up directly through the SoFi app.
3 Great Benefits of Direct Deposit
- It’s Faster
- It’s Like Clockwork
- It’s Secure
As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.
Whether your check comes the first Wednesday of the month or every other Friday, if you sign up for direct deposit, you know when the money will hit your account. This is especially helpful for scheduling the payment of regular bills. No more guessing when you’ll have sufficient funds.
While checks can get lost in the mail — or even stolen, there is no chance of that happening with a direct deposit. Also, if it’s your paycheck, you won’t have to worry about your or your employer’s info ending up in the wrong hands.
SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.