Automate your finances to save both valuable time and money – two things we often wish that we have more of! Automating your finances is setting up systems in ways to help you manage your money. Set it and forget it. Let the systems and technology do the work so you don’t have to think about it. This process of automation is a great way to help you reach your financial goals.
Let’s dive into how you can best automate your finances!
Disclaimer: I am not a financial planner or expert. All information in the post is my opinion and should not be used as financial advice. This is based solely on my experiences. Any action you take based on the recommendations from this blog is at your discretion.
Automate your finances to save money:
The best thing you can automate in your personal finances is saving money. I’m sure you have heard of the “pay yourself first” method to save money. Instead of paying for everything else first and seeing what is leftover, you make saving money for yourself first a priority.
No matter if you have a lot of other payment commitments such as debt repayment, mortgage payments, and bills, pay yourself first – even if it’s just a little bit. Once some of your debt clears or if your income increases, then allocate more money towards your savings.
What can we save up for?
Common things families should save up for include: retirement, emergency fund, kids’ education, kid expenses (braces, extra-curricular activities) and lump sum payments that are paid annually (i.e. insurance, taxes).
Automating your savings for major life events is essential. These life events include: weddings, down payment for cars and a home, and vacations. Avoid going into debt for these major life events so that your life will be less stressful and you able to enjoy these events much better.
Besides savings, what else can we automate?
Retirement fund/ Investments
Automating the transfer of money into a retirement fund is essentially saving money, but I want to emphasize the importance of this. With every paycheque, everyone (young and old) should be diverting some money towards their retirement. Ensure savings for retirement is part of your budget. Take it one step further and invest in your retirement account. Starting when at a young age is so important to take advantage of time and the magic of compounding interest.
Take advantage of contributing to work employer plans for retirement and pension especially if the employer matches/contributes to the plans.
Saving up cash to be transferred to your personal investment accounts is another thing you can automate.
Use automation to pay off debt
If you have a lot of consumer debt, a debt consolidation program may be one option to help pay off your debt. You may already have automatic withdrawals set up for student loan and mortgage payments.
Automate bill payments
The average family has at least 6 payments to make every month (credit cards, cell phone, utilities, cable, childcare expenses, monthly memberships etc). Instead of taking the time to pay them individually, automate some of the payments to save you time. You can add some of your expenses to be paid through your credit card and you can even also automate your credit card payments. Avoid interest charges on late payment fees on bills and loans.
Help you reach other financial goals
You can use automation to ultimately reach other financial goals such as staying on budget (allocating money for groceries and gas), using an online program (Mint, YNAB) to automatically track your spending, and improving your net worth.
What are the financial steps needed before automating savings?
There is some work and planning to determine the amount that should be saved for a specific fund. Let’s start from the beginning and essentially the following will help you figure out a plan for your automating your money. Let’s go through the steps:
Step One: Net Worth
The first step is to determine your net worth. The process of your finding your net worth is basically getting a snapshot of where you sit financially. You understand how much money you have and how much you owe. Take a look at Calculate Your Net Worth
Step Two: Financial Goals
After understanding where you are financially, the next step is to come up with short and long term money goals. What money things do you want to achieve in the next year, 3 years, 5 years and 10 years? Perhaps you want to clear your credit card debts, pay off student and car loans, or save up money for a down payment for a home.
Step Three: Budgeting
Update your current budget or create a new one that will help you achieve the financial goals that you have set in step two. Review Budgeting 101 for budgeting tips.
Step Four: Automate Your Finances
From your budget, you now have the amounts that you are able to allocate towards savings. Now it’s time to implement the automation process.
When you get paid, reroute the amount needed for savings to your savings account. Set it up for it to automatically transfer this preset amount into the savings account.
Two options on how to keep track of your savings:
You can use either one savings account or multiple savings account to hold your savings.
One savings account: All of your savings are held in one account. But you will need a way to differentiate what each dollar is saved for. The easiest way is to use a spreadsheet. See the Give every dollar a job post on how to do this.
Multiple savings accounts: Check to see if your bank allows you the option to open several savings accounts without extra fees. You can designate each account for a different fund (i.e. for emergency, vacation, kids etc).
For Canadian readers, Tangerine is a great option as an online bank. Here are Tangerine’s benefits:
*You can open up multiple savings accounts
*There are no bank fees and no minimum value required
*Tangerine offers higher interest rates compared to the traditional banks. Check out Tangerine’s interest rates
*You can transfer money online from your other banks to your Tangerine account.
*Tangerine offers TFSA accounts. It’s a great option to hold your emergency fund. You won’t be taxed on the monthly interest earned. Remember TFSAs have a limit on how much you can contribute annually. TFSA rules
*Tangerine offers a unique automatic savings feature called “Recipes”
*Check out Tangerine. Use my referral key: 41846936S1 and you may be eligible for a $50 bonus when you open an account.
Technology makes it easy to automate your finances, but you still need to keep an eye on your money. At least a few times a month you need to log on and review your accounts. You need to make sure the systems you have set up are working properly. Periodically you need to re-evaluate your budget and the automatic savings amounts may need to be modified.
People either spend too much time on their finances or no time at all managing it. Investing the initial time to set up the process to automate your finances will help you save time (and money!) in the future. The process of automating your finances helps you take control of your finances and then free up your time to do the other important things in your life.
PIN FOR LATER
You may also like:
5 Reasons Why You Need to Take Control of your Finances
How to use 4 basic spreadsheet functions to create a budget
11 Must Know Money Mistakes Women Make
Other posts on money saving tips, budgeting and family finances
0 0 votes
Article Rating
