5 things that undermine automating your finances

Ever feel like your finances are managing you instead of you managing your finances? Late fees pile up, interest charges multiply, and as soon as you find your 401(k) participation paperwork, you'll fill it out and start participating.

If you felt stressed reading that last sentence, you can understand why people choose to automate their finances. The fewer decisions you have to make in a day, the better.

Automating your finances can help put your financial life in order and free up some of your time … or it could turn into a costly experiment. The trick is to create a solid financial system — and to monitor it.

Here are five things that can derail your financial progress if you put a faulty system on auto-pilot.

1. Not focusing on cash flow

Before you set up your automatic payments, coordinate your payments and deposits. Why? If you set your payments before your paycheck is deposited, you may be looking at some overdrafts down the road — not the way to streamline a system.

Solution: First, make sure you have a cash cushion in your checking account. Second, call the companies to get all your bills due on the same day, a few days after your paycheck is deposited. Then, automate your bills.

2. Not budgeting the right amount for income

Think you get exactly the same paycheck every two weeks? You might … or you might not. Irregular income can cause a change in your financial flight plan. This is particularly true if you have an irregular income due to tips, sales commissions, or seasonal fluctuations.

Solution: If you budget for the minimum amount of income you expect to receive, you'll be in better shape. Also, make sure you set up direct deposit for your paychecks.

3. Not monitoring your finances

Automating your finances doesn't mean you can take your hands off the wheel. At least, it shouldn't mean that. You should continue to monitor your finances after you automate them to make sure you're accomplishing your financial goals.

Here are a few areas that you may feel tempted to stop monitoring:

  • Checking credit card statements. Before I learned more about keeping financial information secure, I didn't check my credit card statements for a few months. Life got in the way. But then I reviewed my statements and found two questionable charges, one to Bass Pro Shop. I immediately called my credit card company, and they were able to remove the charges. But I nearly missed those charges. (Plus, I didn't get anything from Bass Pro, either!)

    Review your credit card's terms and conditions, too, because most credit cards have a limit on how long you have to dispute fraudulent charges after they've been incurred.It's not just your credit card purchases, though. A lot of people don't know what their credit card's annual fee is. If you don't remember that you have an annual fee, an automatic payment could overdraw your account.

  • Balancing your accounts. If you stop balancing or reconciling your accounts, you may miss the fact that fees are being charged to your account or the bank made a mistake. You also start to get out of touch with the health of your accounts in general. You may not realize that you're spending money you can't afford to spend.
  • Increasing your savings. In my opinion, one of the greatest benefits of automation is saving and investing. If you can save without thinking about it or without missing the money, you're on your way to a better life than you would have had. But if you don't ever increase your savings rate, your financial system still isn't the best it could be.

    Here are some ideas to help. Can you increase your savings percentage each year? Will your accounts allow you to automate small increases in savings at a time interval that you decide? How about deciding ahead of time that all raises will automatically go to your online savings account?

  • Reviewing your investments. According to an interesting study by the National Bureau of Economic Research, people are more likely to invest if it's the path of least resistance. The study found that employee participation in 401(k) plans increased to nearly 100 percent when participants were automatically enrolled in the plan. (They still had the option to opt out.)

    Let's say you are participating in an investment plan of some kind. Do you make it a point to increase your contributions periodically (the same techniques to increase your savings may be appropriate here) or to rebalance your portfolio? Speaking of the path of least resistance, your 401(k) plan may offer target-date funds, which rebalance for you depending on your number of years to retirement.

4. Not shopping for the best rates.

Are you a rate-shopper? (Maybe you should be.) This could include shopping for the best savings accounts rates or CD rates. But that's not all. Do you have a system in place to methodically review your insurance policies, whether or not it makes sense to refinance your mortgage, or make phone calls to reduce your monthly bills?

Solution: Set up calendar reminders — maybe once per year? — to check rates, better offers, or to call your current providers.

5. Not improving how you automate your finances.

Don't let the fact that you've automated your finances keep you from learning about new ways to automate or other methods that could improve your financial system. I am a fan of setting aside one financial day per year, but I also keep up to date during the year by reading articles and blog posts too. The ideas I get during the year focus my efforts on the most effective ways to keep my plans running smoothly. So when I do my financial planning on that one day, I know exactly what I need to research, which phone calls I should make to providers, and what I need to concentrate on when reviewing investments and goals. Discovering new apps or software can surely make your life easier down the road, so keep learning!

If you choose to automate your finances, don't forget your finances. Hopefully these five tips will help you make automating your finances a successful step toward reaching your financial goals.

What are the most effective methods of automating your finances? Do you know of any great apps? How often do you review your system and your statements?

More about...Banking, Planning

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Beth
Beth
4 years ago

Good point about keeping tabs on all of your statements! A couple years back, I skipped checking my communications bills for two months and discovered that extra features had been added to my account that I didn’t request. It took me months to sort that one out.

GRS Editors, what’s with all the stock images? IMHO, they don’t add value to the content. I find them distracting.

Top Dog
Top Dog
4 years ago
Reply to  Beth

I agree, the stock images make the whole site seem a bit corporate, relatable, and not like the quality site that JD set up originally. :-/

Top Dog
Top Dog
4 years ago
Reply to  Top Dog

**unrelatable

chacha1
chacha1
4 years ago
Reply to  Beth

also agreed. adding stock photos may make a listicle look like an actual article at first glance, but one hopes you are shooting for a more attentive demographic than that.

Diancey
Diancey
4 years ago
Reply to  chacha1

“Listicle” I love that! Alas, too many of those here these days…

Linda Vergon
4 years ago
Reply to  Beth

Hi Beth,

One of the big reasons is that it improves the mobile experience to have more images, and larger images. We won’t be doing it all the time, of course, but that’s why.

Thank you for your feedback, as always!

Best regards,

Linda Vergon
Editor of GetRichSlowly.org

Beth
Beth
4 years ago
Reply to  Linda Vergon

Thanks for the response! But I think there are a couple of bugs that still need to be worked out. The site doesn’t look any different on a tablet and on mobile the pictures get cut off (you can only see the first 1/3) You might also want to see how alt text can help you.

Not trying to be critical. I still enjoy GRS and want to see it succeed.

Ali @ Anything You Want
Ali @ Anything You Want
4 years ago

I need to get better at automating my finances. I am thinking of implementing a system tied in with my monthly budget review. I track all of my spending regularly, using Mint and my own spreadsheets, I just haven’t gotten around to automating yet.

lmoot
lmoot
4 years ago

I am huge fan of auto pilot. I save the same amount every week. I auto pay the monthly bills that allow me, and I pay bills annually/biannualy when I can (auto & property insurance). I try to keep my financial vehicles at the mimimum for simplicity. My 401k is set up to automatically increase 1% each year. I have a checking account, 401k, IRA rollover, ROTH, and 2 savings accounts (because one only lets me contribute a max of 1k/ month, so the rest goes to the 2nd one). I don’t like fancy finances. I’m very much a finance… Read more »

Top Dog
Top Dog
4 years ago

Is anyone NOT a fan of automation?

I know they say that you need to keep track of your finances for automation to work, but, I know myself better than that.

If I automate finances, then I absolutely am positive that I will let the automation do it’s thing, and stop checking to make sure that everything is right. And if you have to keep checking anyways, why not just keep things un-automated?

Without automation, you are forced to keep an eye on what’s happening with your money. It’s a way to keep my lazy self on track!

Jerome
Jerome
4 years ago
Reply to  Top Dog

I hate automation as well. My way of automated paying of bills is by paying them by hand as soon as I have them. For me this is the best way of keeping track of everything. I do use an automated saving system offered by my bank. For every payment I do by debit-card they charge an additional 10% and put that in a savings account. The theory behind this system is that it is a way of saving which you do not notice. And for us it works. Once a year I invest the accrued money in one dividend… Read more »

Laura
Laura
4 years ago
Reply to  Top Dog

Not a fan of automation here either. A lawyer once told me that if you automate your finances and you need to dispute a charge (e.g., your cable company adds on extra charges you didn’t authorize), then they continue to collect and have no motivation to work with you on disputing it. If instead you’re in charge of paying your creditors, then you have the power to withhold payment while clearing something up. I *am* a fan of online bill paying – much more convenient and provides a trail to follow if they claim they didn’t receive payment. But not… Read more »

AJS
AJS
4 years ago

“The fewer decisions you have to make in a day, the better.”

Well, no–not really. I hate automated finances, and would much rather keep on top of things by paying bills myself. It doesn’t really take all that long, and the time you save by not having to check that all your automated transactions are correct more than pays for itself.

Scondor
Scondor
4 years ago

I only read GRS on my phone on my commute (by bus) and I have to say that I usually like a few photos to help me tie a concept to a visual so I will better remember it. But I’m having a hard time connecting these photos to this article content. Guy buying something at a coffee shop? Japanese graphs of…something. 1 stack of 100’s weighs the same as 4 stacks of 100’s?

Beth
Beth
4 years ago
Reply to  Scondor

In one of my previous jobs, I had to hunt for stock photos to use in content. It’s a wasteland, especially when you’re trying to show diversity and your photo collection lacks it. I don’t envy GRS editors — some articles are more suited to visuals than others.

KD
KD
4 years ago

If you pay your bills using a credit card. You do not accrue rewards points/cashback for automated payments. (one of the reasons i avoid auto bill pay)

lmoot
lmoot
4 years ago
Reply to  KD

Wow, I did NOT know that. Thanks for sharing. Luckily I only auto pay one bill at the moment but that explains why my USAA card didn’t seem to rack up as many points as it used to.

NicoleAndmaggie
NicoleAndmaggie
4 years ago
Reply to  lmoot

If that is true, maybe you should switch cards.

Marta
Marta
4 years ago

Taxes! It’s the worst for my businesses

Obie
Obie
4 years ago

There are several problems in the recommendations here, with the biggest I think being in section number two–budgeting money before you receive it. To fix this problem, there is a great app called You Need A Budget. We’ve been using it for two years now and it’s turned our inability to save into sizable buffers in many budget categories. It was a rough start changing from our method of “cash flow forecasting” to true budgeting, but after about three months we had a good grasp of how everything worked and we’re better off today because of it.

Teri
Teri
4 years ago

Agree with Obie. Have been using “You Need A Budget” for just over 7 months. It has made all the difference for me, budgeting instead of tracking. Have tried several sites that track spending, like Mint and Quicken, with no success. With “You Need A Budget” I have been able to get a handle on my spending and save enough to start checking out sites like this, for what to do with all the money I am saving. Have also put everything I can on auto pay, either they pull or I send. I check the bills when they come… Read more »

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