My Dad gave me a great idea for a post and that is the benefit of automation. Automation is not only a time saver but can result in some reduced expenses and may even contribute to a higher savings rate.
Electronically Paying Your Bills
Most banks (or perhaps all banks) have an online portal to your account where you can set up bill pay. You are able to enter your different bills and pay them electronically each month. My bank even allows me to pay private individuals through this service and they will mail them a check at no cost to me.
Additionally, you can link certain accounts so that your bank will even notify you when bills are due.
You can essentially pay bills via this service one of two ways:
- Set up recurring automatic bills – this works well if the same amount is due every month.
- Manually log in and pay your bill when it’s due – this works well if the balance is different each month.
The Benefits of Electronically Paying Your Bills
I tend to think that most people are paying their bills electronically these days. In the event that is not true, I thought it a worthy mention.
There are several benefits to doing this:
- You can save money on buying checks
- Save time on writing out & mailing checks
- Keep more $ in your pocket rather than paying for postage
- Save some trees – which BTW, you should also sign up for paperless statements
Disclaimer on Credit Cards
Before I get into automation on credit cards, I have a disclaimer. First and foremost I only recommend using credit cards if you can responsibly pay off the balance in full and on time every month. If not, you will be paying crazy high-interest rates.
If you are currently in the process of paying down credit card debt, I recommend you cease from charging more on these credit cards. The reason is so that you don’t have compound interest working against you. I found once I developed the discipline to pay down my credit cards, I was then able to learn to use them responsibly.
Automation in Paying Your Credit Cards
So if you are using credit cards responsibly you can log in to each credit card’s online portal and set up automatic payments each month. There are typically two options here:
- Pay the statement balance in full every month
- Pay the minimum payment due every month
I always choose the first one. If you choose to pay only the minimum payment, you’ll carry a balance over every month and be charged high-interest on it. In that latter scenario, the credit card companies win. Don’t do that!!
Now that I set up all my credit cards to pay the statement balance in full every month, I notate on my budget which time of the month each one is paid. I’m notified via email before the payment is taken and I put that amount into my budget.
The key is here is not charging more than you can afford to pay off in full. That can be accomplished by tracking & budgeting
The Benefits to Automation in Paying Credit Cards
Some of the benefits are primary and others, secondary.
The primary benefits here are that you will never be late a payment and you will always pay off the balance in full (if you set it up that way).
The secondary benefits are that you are establishing good credit by using and paying off your credit cards each month. Additionally, if you have chosen credit cards that award travel miles and/or cashback, you are getting some more perks!
Automation With Savings
This is my favorite! It allows me to pay myself second after I first tithe off the top.
I’ve set up to max out several retirement accounts two of which are taken pre-tax from my paycheck:
- Employer-Sponsored Simple IRA
- Health Savings Account
I started maxing these accounts out in 2018 and now each year in the late fall, I verify the new allowable contribution limits for the next year. Then I alert my company’s accountant to up my contributions if the limits have risen.
I don’t see this money as it is taken right off the top.
Furthermore, I’m maxing out a traditional IRA for 2019 which will count as a deduction on my 2019 taxes. This can be set up as an automatic withdraw from my checking account into my Vanguard account. Currently, I have it going into a Vanguard settlement account until I get it to the minimum needed ($3,000) to buy VTSAX. After that, I can set it up to buy the mutual fund automatically.
If you are building up an emergency fund and/or doing some type of savings in a money market account, you can also set up automatic transfers. Be sure to write this in your budget so that you account for it.
The Benefits to Automation with Savings
There are some strong benefits to this one and I’d argue that everyone needs to be doing this. Perhaps you are not yet in a position to max out your retirement accounts and that’s fine. However, everyone should be saving something for retirement even if it’s small.
Furthermore, if your company offers a match for the employer-sponsored retirement account, you’ll want to contribute up to it. That is free money and we all like free money!
The benefits I see on this automation are:
- Once it’s set up I always hit my retirement goals
- It reduces my taxable liability
- I don’t have to pay FICA taxes on pre-tax contributions
- I won’t accidentally spend this money
Automation is a time and money saver. Moreover, it can assure that you hit all your savings goals each and every month.
Before you can implement automation, you need to set up a good strong budget. This way you can assign all of your dollars to a category – bill pay, saving, spending, etc.
Automation is another tool in our toolboxes to help us maintain control of our financial lives. These tools will work for us if we use them properly.
How are you using automation in your life? What benefits do you find?