Are you tired of manually moving money around, week after week, month after month? Do you spend a lot of time managing your finances each time you get paid? I’m here to share a few tips on how you can automate your finances, behind the scenes, so your money is working for you at it’s full power, with pretty minimal maintenance.
Let me tell you, financial success isn’t magic. There is no secret to finding it, no shortcut, and no easy way out. However, having the right systems in place can make things a whole lot easier. The right system is broken up into 3 main pillars:
Instill and create positive, long-term financial habits
Fight and avoid temptation to deviate from your plan
Help you achieve specific goals with minimal thought
The Three Pillars
The combination of these three pillars is, in my opinion, the highway to financial freedom. Without positive habits, the ability and self-discipline to avoid temptation and focus our money on our priorities, and progress towards specific goals, it can be hard to stay motivated.
Positive financial habits are influenced by our life every day. How we view money, what we choose to spend money on, how we think about and talk about money; these all influence our daily financial habits. Creating a new habit, and even sticking to habits we already have, can be challenging. Automation removes that challenge by putting a predetermined amount of money into savings and/or investments right away, before you even see it. You don’t even have to TRY!
When it comes to fighting temptation, most of us struggle with similar areas of spending. Shopping, going out to eat, coffee and the like. These areas can be hard to avoid and it can be hard to say no, especially in social situations. In fact, you shouldn’t have to say no; you can automate your finances and also say YES! to the things you love. Automation removes the need to ask “Can I afford this and still reach my savings goals?” because your savings are already set aside, automatically. Your savings are no longer leftovers.
Finally, you can achieve your goals without the extra thought. How? First, you need to set a specific and measurable goal. For example, say you want to save $10,000 this year. That means you need to set aside $833 a month into savings. Does that feel achievable? If so, that $833 should be set aside before you even have the change to touch it when you get paid. On the other hand, does that $833 feel like a lot? Then start with half of it and see what it would take to slowly creep up to that amount. Regardless, automation amplifies the progress towards your goals.
What You Can Do
1. Set up the right accounts
Having the right accounts in place keeps your money organized and makes for easy automation. I have an entire post on which accounts I use and how I organize my money here. Long story short, I group my money into 4 main categories: money I use daily, inconvenient savings, investments, and retirement. All of my savings and contributions between the accounts within these 4 categories are completely automated because of how they’re set up.
2. Divide your direct deposit
Divvy up your direct deposit so each time you get paid, a certain amount goes to each of your categories. I put 50% of my paycheck each month into my inconvenient savings account (hellooo saving for a downpayment on a home). I do this so that the money is inaccessible to me unless I actively remove it from the account. Putting that money away through my direct deposit gives me access only to the money I need, and therefore I know what I can and should be spending. I follow a similar process for my retirement and investment accounts as well.
3. Set up auto-pay
All of my recurring bills are on auto-pay and pull from the same account. Auto-pay is amazing because I know that my bills are always paid in full, on time. I get an email notification that is happened and then I can move along with my day. This totally removes any need for me to be manually logging in to pay my rent, my utility bills, my credit card bill, etc. I do ensure that my bills are accurate (obvi) but I know that making the payments isn’t something I need to give a second thought about because it is #automated.
The Argument for Manual Finances
After reading this, you may think I am the queen of automation. While I do like to keep a lot of my savings and bills automatic, I also believe there are areas of our finances where manual tracking is super important. Largely, this has to do with budgeting and expense tracking. When it comes to keeping track of your spending, building out a budget or a spending plan, and actually checking in to ensure you’re on track; this can’t be automated.
I am not a huge fan of budgeting apps or tools that do this for you. I am a firm believer in keeping track of expenses through a financial planning spreadsheet or even in a journal, if that floats your boat. There is something about taking the time to actually acknowledge a purchase, reflect on where your money is going, and make decisions with that information that cannot be automated. These are fundamental practices to financial literacy; so, in your quest to automate, take a step back and make sure you’ve got a system in place for the basics, too.
As you move through life, finances somehow become increasingly complicated; it’s inevitable. Setting up the right system and putting your savings and bills on autopilot can seriously simplify everything. This system will help you build better habits, avoid temptation that leads to deviations, and reach your financial goals.