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?