I’m the kind of person who’s afraid of breaking the law. I might be a rebel, but I fear ending up in jail. I know this is extreme, but fear combined with ignorance has a way of blowing things out of proportion.
So when I got my first job in November 2016, I took up the responsibility of registering my employer with HELB (Higher Education Loans Board) so they could deduct my loan from my salary every month.
$30 was deducted from my paycheck every month before I had access to the money. I learnt to live on $30 less from the first month as an employee. This was the first smart financial decision I made that contributed towards attaining the debt freedom status.
That decision, though made out of fear, meant that I didn’t have to rely on motivation and willpower, which doesn’t work for most people, to pay the loan on a monthly basis. And that’s exactly what automating your personal finances does.
“If we set up the right defaults, the right things will happen.” – Ramit Sethi
What does automating your finances mean?
Automating your finances means setting up a system(s) to put cash away for your future self through savings and investments and setting up your bill payments to be paid every month automatically without having to do anything.
By automating your finances, you ensure that your bills are always paid on time, avoid late payment fees and you’re always securing your future. All on autopilot.
How to automate your finances
Let’s be honest, most of us are terrible at paying bills on time, saving, investing, updating our net worth excel sheets or even paying debts.
Taking time to sort out your bills, track expenses and go through your bank statements is exhausting. It almost feels like a full-time job that we’d rather avoid.
Learning how to automate your expenses will save you time by having one less administrative thing you have to remember.
1. Set up a standing order
A standing order is an instruction that you give your banker to pay a certain amount to another account.
A standing order helps you set up regular or fixed payments from your bank account automatically which reduces the likelihood of spending money that is meant to go towards your savings, investments or debt payment.
It helps build a saving culture without you having to remember where to put money aside at the end of each month or without having to rely on discipline.
This also ensures that you pay yourself first which is the most important rule in personal finance. Always ensure that at least 10% of your paycheck goes towards your savings and investments.
Note: standing orders can be very costly. Watch out for the bank charges for this service as it may not make financial sense especially when transferring money to an investment account on a regular basis.
2. Sign up for a pension fund with your employer
I have spoken to a lot of people who don’t know whether their employer provides a pension benefit or not. This means they also don’t know if they’re contributing towards it and if they are, they don’t know exactly how much is being deducted from their paycheck.
The first thing you should do is find out from the Human Resources department if they provide it. If they do, sign up!
Most of these schemes are literally free money because employers match your contributions. That is, if they deduct $100 from your salary, the employer contributes the same amount towards your retirement. Ensure that you sign up for the maximum amount possible. Why would you want to leave free money on the table?
The money is deducted directly from your salary every month before the money hits your account. By the time you’re retiring, voila! you have been saving through automation.
If you’re not employed, or if your employer doesn’t provide a pension fund, you can sign up individually with one of the many private pension providers then go ahead and set up a standing order.
3. Set up automatic bill payments
You can set this up with your bank where your bank will pay the billing company or service provider on your behalf, automatically.
A lot of banking systems take advantage of technology, this means it’s possible to not hustle with paper payments or make queues to pay your bills.
Credit cards are best used for this because they provide consumers protection against fraud. A lot of the service providers (water, electricity, internet, gas etc) provide an online system where all you have to do is enter your credit card details which set up automatic bill payments.
This is what I have done with my water, electricity, internet, credit card, and gas monthly bills. I receive a notification through email or text message after the bill has been paid. This means that I never have to pay late penalty fees or waste time by paying the bills manually every month.
Of course, for this system to work, you have to make sure there’s always enough money in your current account or bill payment account. You need to know how much your monthly bills are from your budget.
Paying your bills on time also contributes towards growing your credit score.
I still pay some bills manually as I have memorized the dates. I include these in my monthly financial goals.
4. Set up calendar reminders
One of the easiest tips that helped me achieve my 2020 financial goals was through setting up Google calendar reminders. My favourite ones are…
Tiny, what is your net worth?
This comes through every end month. I then proceed to open my net worth excel sheet and update it based on how much money I have put towards my investments and how much debt I paid off (though I’m now debt-free!!!)
Tiny, review your monthly expenses.
This is also an end of month reminder where I sit and review my monthly expenditure using 11 questions adapted from The Financial Diet book by Chelsea Fagan & Lauren Hage. I shared the questions here.
You can also set calendar reminders to:
- Save and invest
Set time on your calendar each month to make transfers to various investment options, such as Money Market Funds, Fixed deposits, brokerage account or any other investment.
- Go through your monthly bank statements.
Calendar invites aren’t just a great way to remember your meetings, it’s also a perfect way to organise your finances. To make this easier for you, activate mobile or internet banking and pre-save the banking details so it becomes easier, faster, and automatic.
What kind of accounts can you automate?
1. Rent and mortgage payments
You know when your rent is due, right? Set up a direct debit request, standing order or like we do here in Dubai, give your landlord post-dated cheques for a whole year.
You can do the same with your mortgage payments by setting up a standing order or direct debit request.
2. Loans or most forms of debt
3. Insurance payments
These can be weekly, monthly, annual, etc.
5. Annual expenses such as insurance
6. Emergency fund contributions
Here’s your guide on how to build an emergency fund.
7. Savings and investments
8. Retirement accounts
9. Credit cards
I make all my payments via my credit card because it’s easier to check just one bank statement, it’s easier to track and automate the bill payments.
Stuff to look out for when automating your finances
1. Technology errors
Once in a while, bank systems will have downtime. If your payment is due during this time, it may not go through which means you might end up missing payments. This will lead to hefty late payment fees.
To avoid this, combine automation with notifications via email or text messages.
The automation will keep you on track with minimal effort and willpower. The notifications will keep you mindful so you can course-correct when appropriate.
Notifications are also important reminders as you can sometimes change your mind about paying for some subscriptions. For example, I thought I’d keep paying for my annual Medium subscription then I realized that I actually don’t use it as much. The subscription renewal reminder was the nudge I needed to cancel.
2. Overdrawing your account
This can happen if your automated payments are due on dates when usually, you don’t have money in your account.
You can call your service providers and request to be billed at the beginning of the month, or whichever time you usually get paid to ensure that you always have money in your account when the deductions are made.
3. Complacency and laziness
Automating your finances can encourage complacency and laziness.
Before you decide to go all-in, you have to make sure you’re the type of person who can keep track of the dates your money gets deducted from your account and make sure there’s always enough money.
For some bills such as those that would lead to a huge penalty, it’s okay to stick to a manual system especially if you’re the type of person who’s likely to relax and fully depend on a computer to do it for you. Automation works best if you’re also conscious to check that everything is going according to plan.
Advantages of automating your finances
1. You can finally stop depending on non-existent financial discipline.
Self-control, motivation, and discipline will always fail you. To make the right financial decisions, automate!
2. You can avoid decision fatigue
Due to the repetitive financial chores, most people interpret it as too much work which leads to financial avoidance.
3. It leads to peace of mind, a stress-free life
Even when you travel, you know that your credit card, rent and other bills will be paid on autopilot. This way, you get to focus on your vacations and having quality time with your loved ones.
4. Say hello to guilt-free spending!
After automating all important bills, you give yourself permission to spend on luxuries.
When you have saved, invested and paid all your bills before indulging in luxuries and wants, you’ll also know if you really can afford that stuff.
Ramit Sethi, the author of I Will Teach You To Be Rich is the king of this automating finances.
5. You avoid late fees/penalties
That money should go towards your investments
6. You save on monthly convenience fees
“Monthly convenience fees” are charged by insurance companies for the ability to pay monthly vs annually. If you can pay for something for the whole year, do it.
7. You learn to live on less
Out of sight, out of mind. Most of us spend money simply because we have access to it.
8. Run your life like a boss
There are better ways to spend your time other than queueing to pay bills, arguing with service providers, being angry at late penalty fees etc
Forgetting a credit card payment, for example, will screw you up big time. Make smart financial choices. Run your life on autopilot like a boss!
Book recommendations to help you automate your finances
1. The automatic millionaire by David Bach
2. I will teach you to be rich by Ramit Sethi
3. Nudge by Richard H. Thaler & Cass R. Sunstein
Remember that no plan will ever be 100 per cent automatic as technology errors can occur. But you should still automate your finances as much as you can.
Start with one area of your life such as savings and investments, then onboard other areas such as bills, subscriptions, debt payments etc
You don’t have to live your life like you’re in a war with your money. The only war you should be actively enrolled in is the war against poverty!
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