Hey there – in this post, I’m going to discuss how to automate your finances, something I did years ago and have never looked back. Automating your finances ensures that your money is always doing the same thing each month so that you don’t have to keep reminding yourself or don’t forget to save and invest.
When I automated my and my wife’s finances, our savings rate went through the roof. We no longer had to manually put money into our emergency fund or invest in our retirement accounts. We started managing our money more effectively and paying our bills automatically. We ended up having a fair share of extra money, which is always helpful.
Let’s jump right in and talk about the best ways you can start saving by automating your finances!
1. Open Accounts to Automate Your Finances
First things first, open a checking account where you can hook up to all of your online bills. This account should be easy to access, have a free billpay system, and optimally not have any fees associated with using it.
You’ll want to put at least two months’ worth of bills in this account to prevent having an accidental overdraft. If you’re unsure how much your bills are on average, now is a great time to create a budget to work those numbers out.
To have money regularly flowing into your checking account, set up direct deposit from every income source possible, including your job and any passive income sources you may have.
Next, open a savings account. You’ll use your savings account as both a way to save and as an emergency fund. If you have more than six months of living expenses saved up in your savings account, consider opening an IRA or a taxable account for investing additional funds. For investment accounts, check out M1 Finance. They’re easy to use, and there are no fees for using their platform. With M1 Finance, you can set up automated investing, as I’ll go over below.
2. Pay Yourself First
Pay yourself first every month by sending a portion of your income towards your savings account. If you don’t have at least three months of living expenses in your savings account or emergency fund, contribute as much as you can, but ideally around 10% minimum. This money should be left in savings and not touched except for expenses that don’t come up regularly.
If you don’t have a savings account, use my bank of choice, CIT Bank. CIT Bank has a competitive interest rate and encourages you to save each month by providing a higher amount of interest each month to those who deposit at least $100 or maintain a $25,000 balance.
Once you’ve set up your savings account, ensure that you have at least $1000 in your emergency fund, though three to six months is preferred. Regardless of your debt situation, it’s crucial to have some amount of money in your emergency fund in case something happens where credit isn’t an option.
I would also argue that you have to have a little fun money each paycheck, if possible, so that you don’t lose your mind. This could be something as simple as treating yourself to a snickers bar or something more extravagant like a night out with your significant other or friends.
3. Hook Up All of Your Bill Accounts to Automatic Bill Payments
When you autopay your finances, there’s no chance that you will be late or miss a payment. And because you have at least two months’ money worth of bills in your checking account, you don’t have to worry about overdrafting your account when your bills pay automatically.
Most companies will have an option on their website to automatically pull money from your checking account each time a bill posts. This includes credit card companies, utility companies, your internet, cable, and phone companies, credit cards, and more.
With credit card companies, oftentimes, you can choose how much to pay automatically. What I do is I autopay the minimum payment and then pay the rest off manually. This ensures that I’m never late on a payment yet don’t pay more than I’m ready to pay, in case for some reason there’s a spike of expenses one month. This also gives me time to review my credit card statement each month to look for anything suspicious like a fraudulent charge.
Note: For accounts that don’t have an autopay feature, or for one-time bills such as medical bills, use a bill organizer. That way, when your bills come in the mail, you can place them in the bill organizer to be paid as soon as possible. One way to organize bills with an organizer is to use Bills In and Bills Out categories for bills that need to be paid and bills that need to be mailed.
4. Automate Contributions to Savings and Investing
Now that your bills are automatically taken care of, it’s time to talk about automating your finances via saving and investing. If your emergency fund has up to six months of living expenses in it, that’s great! Otherwise, it’s time to automate a payment to your savings account, as mentioned above.
For investing accounts, I recommend investing as much as you can spare, after you’ve fully funded your emergency fund and paid off any high interest debt. Once you’ve paid off high interest debt, such as credit card debt, personal loans, and some auto loans, it’s time to invest. Using an IRA, such as a no-fee account with M1 Finance, will jumpstart your retirement nest egg. Check out this post on how Roth IRAs can benefit you with its tax-savings.
Many financial planners say that you should invest 10%-15% of your annual income. If you’re making $1000 per paycheck, you’ll want to invest a minimum of $100 to $150. The more you invest, the more you’ll see in your retirement.
For those who have a lot to invest, it may make sense to also invest in a taxable account or other investment vehicles like peer-to-peer lending. Read my post on Lending Club to see how I consistently earn over 8% ROI, paid out weekly as a form of passive income.
5. Increase Automated Savings and Investing Over Time
As your income rises over the years, you might be tempted to spend more money because you’re earning more. And you should enjoy your hard-earned cash! – But, when your earnings increase, allocate some of your increased earnings to your savings and investments. If you get a 6% raise, for example, consider allocating 4% of that raise to your future investing and then bank the 2% remainder for your own enjoyment.
There’s nothing wrong with enjoying your money as you earn more of it – don’t let anyone tell you otherwise. When you allocate more money to investing and savings, you will be able to retire earlier and have more money for your children’s college funds and future purchases down the road.
To automate your finances via investing, most brokerages have an auto-invest option. M1 Finance allows you to automatically invest as well as automatically direct deposit into your account. This way, you can set your investments on autopilot and not think about them until you need the money much later.
Wrapping It Up
Automating our finances was one of the best things I did for my and my wife’s money. We never were late with a bill, automatically built an emergency fund, and grew my Roth IRA and our taxable accounts consistently, maximizing our returns.
A great side effect of automated finances? Passively building up money to take a dream vacation.
Do you automate your finances? Let me know in the comments how automating your finances has saved you time and allowed you to invest more!