Financial Foundations: Part 9 – Automation

This is the ninth of ten posts describing the key pillars of building a strong financial foundation. Read the introduction here. Check back each Monday for the next post in the series.

A big part of financial responsibility is knowing where your money is coming from and where it is going. When you are able to automate some of your expenses, savings or payments you can then worry less about dealing with them. On the other side of the coin you may become used to not thinking about what you are spending on things such as your cable television or cell phone plans. In this pillar we will discuss when you should automate your finances and when you should unautomate them.

Why You Should Automate

The main advantage to automating is that you can reach your goals of savings or debt repayment without having to consciously think about it each time there is a transfer. By making the payments automatic you can’t forget to do it, decide to spend the money on something else or get used to having the extra money in your checking account.

When I determined my plan to pay off my student loans I made the transfer from my paycheck directly go via direct deposit into a separate savings account. By never seeing the money hit my spending account I didn’t have the urge to spend it. Beyond the automatic savings as I also tied it up in Certificates of Deposit for further protection from impulse spending.

What You Should Automate

The most important things to automate within your finances would be any plans you have to save for a goal, credit card and debt payments, and recurring bills that you don’t want to manage. Your savings goals should be automated like I described above so that you are able to meet your goals. Credit card and debt payments should be automated so that you don’t incur any late fees or hurt your credit scores.

Bills such as your mortgage or rent are good monthly payments to automate because they don’t change as often or are based on usage. Utilities such as water, trash, sewer or electricity would also be helpful to have automated.

What You Shouldn’t Automate

If you automate all of your bills, payments or expenses you run the risk of not being aware of how much you are paying for certain expenses. An example of this would be something like a cable television and internet monthly bill. Most companies sign you up for an introductory rate for six to twelve months and then increase your prices. Unless you are checking your bill online or notice the increase on your credit card statement, you may end up spending two to three times as much as you thought you were each month.

Self Review of All Automation

Look at all of the expenses or savings you have automated and decide whether or not you need to keep spending money on them. Did you even remember you were paying for it or are you able to get by without that expense? Determine what expenses or bills you pay that it would be good to unautomate. By creating a time each month to reevaluate specific recurring expenses you are at least aware of what you are spending on them each month. Without ever seeing how much you are spending on a bill you might not realize how much it is costing you.

Unautomate Your Finances

A great resource to facilitate the decision on how to handle automation in your finances is the inexpensive product by blogger Adam Baker called UnAutomate Your Finances (not an affiliate link). I’d recommend watching the video of him describing his philosophy on the topic to see how it has worked for him. Read more about how Adam and his wife are on a quest to pay off all their debt as they travel around the United States at ManVsDebt.

What parts of your finances should you automate? Are there any that you should un-automate?

Financial Foundations Series

MoneyCaleb Wojcik