How Automation has Helped Me Reduce Debt and Save
Readers often e-mail me for tips on how to keep their finances manageable. There are so many options out there that it can be overwhelming. I was speaking with my mom about this some time ago, and she felt the same way.
My mom has been responsible with her money, but she felt that she could be doing better. After chatting with her, we decided she should switch banks and automate some of her bills.
Talking with her the other week, she’s really happen with her decision. She has saved both time and money with her new bank and online bill pay. I completely agree with her. Automating your finances can be a wonderful thing if done correctly.
Why do I love to automate my finances? For one thing, I like being in control without having to spend hours tracking down bills, envelopes, and stamps. Here are some other reasons I enjoy financial automation:
I don’t pay late fees
I used to occasionally lost bills or forgot to send checks whenever I had a very busy week. Late fees can be $29 to $39 for credit cards. Even if I called my credit card company to make a last minute phone payment, I was charged a $15 convenience fee for this privilege.
How to fix it: Set up free online bill pay with your bank. Most banks and credit unions offer this money and time-saving feature. Spend an hour setting this up with your bills, account numbers, due dates, and amounts, and you’ll only need a few minutes a month to maintain your system.
I’m saving money and I barely notice
In the past, I would save money for a few weeks and then had an emergency. After getting through the trouble, I’d neglect to re-start my savings, and would go through this again and again. I felt that I was barely getting by, and that saving some money was cutting me to the bone even further.
How to fix it: Have a portion of your paycheck automatically transferred to a high yield savings account. The trick is to wait until after the transfer happens to check your balance — hide that money and you’ll never miss it.
Don’t be a hero. Start out with a small transfer. It’ll take a bit of time, but you’ll become use to the slightly smaller paycheck. You can then increase the amount gradually over time. Just be sure to do your research and select an FDIC-insured bank or a CUNA-insured credit union that offers high interest rates for savings, and also has a solid reputation for customer service.
Retirement savings is a cinch
I started saving for retirement early on, while still in college. Unfortunately, I got distracted and my savings became sporadic as I got into debt. Getting back on the wagon was tougher than I thought.
How to fix it: Call your company’s Human Resources department and sign up for your company’s 401(k) program. Check to see if the company is matching contributions, and set your automatic deduction to be large enough to get the company match. That’s basically free money in your pocket.
If you have the opportunity, also have a small portion of your paycheck automatically transferred into a traditional or Roth IRA. There are tax advantages to having an IRA, so looking into which one is best for you.
To improve the performance of you IRA contributions, try looking for low cost index mutual funds or index ETFs. Besides performing better than many actively managed mutual funds, index funds can also make investing a lot simpler.
How about you?
Do you automate your finances? If so, what are the main benefits for you? If you prefer manually working with your finances, do you have tips on making it easier?
Disclaimer: Discover is a paid advertiser of this site.
Reasonable efforts are made to maintain accurate information. See the Discover online credit card application for full terms and conditions on offers and rewards.
Modified on October 4th, 2011 - 17 Comments
Filed under: Debt Reduction, Saving & Investing
About the author: Laura Martinez helps families achieve financial freedom by sharing tips for reducing debt and building freelance income over at Couple Money.
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17 Responses to “How Automation has Helped Me Reduce Debt and Save”
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September 16th, 2009 at 9:41 am
My financials are almost completely automated and paperless; I’ve even set up my credit cards to automatically pay off the full balance each month. Although American Express required me to request and mail in a paper form, so they don’t always make it easy.
I find that this saves time and keeps me from paying late fees when I’m traveling and forget to pay a bill (although they would always reverse the fee as a “one-time courtesy” when I called, it was still a hassle.)
The only $ decision I make each month is what ETFs to invest in based on how my allocation is looking against my targets.
To be more fully automated, I wish there was a program that would download the PDF statements from each of my accounts and save them somewhere each month. Do you know of anything?
September 16th, 2009 at 9:57 am
FYI – it is NCUA that insures credit union accounts and not CUNA. http://www.ncua.gov
September 16th, 2009 at 10:30 am
I only have a single bill that is a fixed amount every month (mortgage) — that one can be automated. The other 6 bills are utilities (varying amount) and a credit card (varying amount), so I absolutely do not automate them. For those, I still receive the paper statement, so I can study them for errors, and then I use the online bill pay (manually) so the bank sends them a check for payment. I also pay my bills twice a month (when I get payed), so I keep track of which bills I pay so I can catch any missing bills.
I do not allow any company direct access to my accounts — if they erroneously ‘pull’ to much money out, you are already in a bad spot trying to get money back.
But, I do know other people that set things up the way you describe — just not my comfort level. The ‘automatic savings’ idea is a must!
September 16th, 2009 at 12:35 pm
Automation has been the best thing I ever did for my finances. I have a free personal finance account at yodlee.com, which links all my accounts. I get bill reminders, daily updates, and net worth statements. It saves the information for all of the linked accounts so I can look up the password for some obscure account that I rarely use. I get all of my bill electronically that are available that way. I pay my monthly HOA dues via a monthly scheduled online bill pay. I automatically transfer money to savings (both emergency and short term for things like vacation) each month. I love being able to check all those things at once. I feel very on top of things and I have started setting net worth goals for us. It’s been great.
September 16th, 2009 at 12:51 pm
BG,
I think you misunderstood or it wasn’t clear in the original article — you can use online bill pay for variable bills as well. Setting up a payment date and set amount are entirely optional, and at NO TIME does the business have any access whatsoever to your account. Online bill pay is a PUSH from your bank, NOT a pull by the other business.
My wife handles our main account and all bills, and uses online bill pay for all bills. At our credit union site you can go into the bill management section of the site and set up a bill, say a credit card payment. You put in the name of the card company and it looks in its database to see if it can handle electronic payments. If so you only enter the account number, and then whenever you want to pay a bill you type in the amount you want to pay and the date you want it paid on and on that date the bank will electronically send that amount to the company. If the company is not in the database, then you type in the address and they will then cut an actual paper check for you and mail it.
No business has electronic access to our account at any time. The entire process is strictly under our control, at our convenience, at all times. I really can’t imagine going back to the bad old days.
September 16th, 2009 at 12:56 pm
Oh, also, we use multiple accounts for different reasons. We have a main account that our pay goes into automatically. We each have an individual (joint) account that we debit an “allowance” each payday. We also have a “bill payment” account that is used as stated above (using online bill payments), that way EVEN IF we wound up in a weird situation where a payment was screwed up, it would never touch our primary money pot. My wife figures out the bills for each pay period and transfers over the $$ amount required into the bill account and sets up the automated payments as soon as she finds out what the amounts are for various bills. All our bills are paid within a few days of payday, out of one dedicated account. We even pay our car loans to the same bank out of the bill account’s savings account, so that is separate from even the rest of the regular bills.
Doing this also means we can do things like split the mortgage payment in half and pay half on each pay period into the bill account, and still remain 1/2 to 1 full payment ahead in the account at all times as a buffer.
Works great and I sleep very well at night now that I gave up tinkering with her daily money management.
*EDIT* I realize the above may sound very complicated, but its actually ridiculously simple in practice once you get over the “one big pile of money” mindset and divvy it up for specific purposes. And like I said, we don’t really lose sleep over money anymore because of this process.
September 16th, 2009 at 1:18 pm
We’re totally automated as well, and it’s wonderful. The only note of caution is to keep an eye on statements. We have our phone, TV, cable and wireless all on one bill, automatically paid by credit card. Convenient yes, but it can quickly become a little “out of sight, out of mind”. I recently looked and noticed that the rates had gone up considerably. Nothing that a phone call didn’t fix, but still important to take a look.
September 16th, 2009 at 1:49 pm
Dave) Maybe I was reading it wrong — what you describe is basically what I do: get a bill, go online and setup a payment to the business using my bank’s website for an amount that I manually enter and a date that I manually enter — I do this every month for each bill. The bank eventually wires (or cuts a check) to the business on my designated day. I am manually “pushing” the money to the businesses.
The way I was reading the article (perhaps incorrectly) was that they were setting up payments to be made to the businesses (automatically) based on whatever amount the business tells the bank is due (via an online bill). Specifically in case a bill is lost or whatever, it will still be paid.
Reading the other article that is linked on this one — it clarifies the matter: only the “fixed” bills are truly automated (paid even if you are dead), the variable amount bills are still manual (but paid via online bill pay): that’s exactly how I do it too.
September 16th, 2009 at 2:09 pm
My setup sounds similar to Dave’s.
I use three main accounts for my automation – an online savings account, an online checking account that earns interest, and a checking account at a local bank.
My paycheck is direct deposited to my savings account every two weeks. Twice a month, I have automatic transfers set up to the checking accounts (and various savings/brokerage accounts). The online checking account covers my “vital” bills – rent, car, student loans, insurance…all fixed amounts. I never touch this account, and all transfers into and out of it are handled automatically, so no more worrying if I have enough in my checking account to cover rent at the beginning of the month.
The local checking account covers my variable bills and day-to-day money. I have easy access to it, and it’s connected to a local savings account for overdraft protection.
The great part of the schedule is that twice a year, I have an extra paycheck left in my savings account that doesn’t get transferred into a checking account. Extra automatic savings!
Like Dave said, it sounds a lot more complicated than it is
September 16th, 2009 at 5:12 pm
Sorry for the confusion!We have recurring payments with our bills. Variable bills like electricity are a cinch to update. We just sign in and adjust the amount.
September 17th, 2009 at 12:17 pm
Depending on how advanced your bank’s online bill pay application is, you can set up recurring payments for varying amounts with rules. For example I have a cell phone bill with a data plan that usually varies by a dollar or two each month. So, I set up an automatic payment rule to pay the bill when it comes in for the full balance as long as the balance is not above $95. If the bill comes in above that amount the bank sends me a email saying that the bill was recieved, but the dollar amount was above my automatic payment limits so it did not send a payment. I can then log in to my bank, review the bill and determine if I want to pay it or if I have to contact my cell phone provider because of an error. This saves me so much time! It is like someone else is looking out for incorrect bills for you. Virtually of my payments are automated through my banks online bill pay system or through Paytrust (which is a good option for those of you who pay bills from different accounts at different banks).
I would never set up automatic pulls from businesses, simply because it is too much to keep track of if anything goes wrong. When you do it through your bank everything is in one place and they usually have more indepth alerts that keep you up to date on what is going on with your bill pay account.
September 17th, 2009 at 11:24 pm
One note….. by automating your bills your credit report will now reflect that you are a on-time payer.
to @10 above – my utility bills are automatically paid from my account. the utility company sends me an email in advance, and automatically takes it out on a date certain. Thereby I’m not having to update anything. What a real time saver. I enter the amount in my software when the email arrives and I’m on my merry way.
Good Posts!
September 18th, 2009 at 10:57 am
#11) that is interesting, I need to check my bank to see if they offer that — I think that does provide a good safety net to catch certain errors.
#12) No way I could do that, and here are the reasons: if the company makes an error and “pulls” too much, you are gonna be in for a fight trying to get money back. Also, you should be watching your water bill closely: you could have a leaky toilet that is losing 21,000 gallons per month and not even know it. Most of my utility bills have graphs showing what my usage was compared to previous months and the same month last year. Also, as someone else mentioned, you may not be aware of rate changes — anytime a company raises rates on me, I immediately start looking for a replacement company.
September 28th, 2009 at 6:27 am
Great post, thanks for sharing your personal ways of saving and reducing debt, it will surely help many people.
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