Set Your Money on Autopilot: How to Save with Financial Automation | Entrepreneur

Financial automation could change your life financially.

How come? The reason is that we face too many choices on a daily basis. With financial automation, you’ll be able to make money without even thinking about it daily, since you’re reducing your choices.

Also, you’ll always be in good standing with your bills, protecting your credit score and preventing late fees. If you have trouble saving money, you can set up automatic transfers to your savings or retirement accounts.

Are you dreading the idea of budgeting? It is also possible to automate that process.

And don’t be overwhelmed if you’re unfamiliar with pre-planning your finances. Here’s how to set your money on autopilot and answers to some of the most frequently asked questions.

Assess your financial situation.

The first step to automating your finances? Assess where you stand now.

To begin, make a list of the accounts you use every month. This usually consists of checking accounts and credit cards. Keep all accounts that you monitor or only use occasionally, like savings, stocks, or 401(k)s, out for now.

Your next step is to list any expenses you pay each month and when they’re due. However, leave it out if it has no due date. For instance, include your utilities, rent, car payments, and credit card bills, but leave out your grocery bill.

You’ll end up with something like this:

• Checking Account. Rent (1st), renter’s insurance (8th), credit card A (18th), credit card B (25th), student loan (30th).
• Credit card A. Spotify (10th), Chewy (22nd).
• Credit card B. Car insurance (23rd), electricity bill (3rd), HelloFresh(12th).

It’s likely that some of these payments have already been automated. Usually, when you sign up for an app or service, you have to enter your credit card information. Also, most lenders offer incentives for enrolling in autopay during setup, like lower interest rates.

The most important thing, however, is that you can now automate your finances and accelerate the saving process.

Automate your savings.

Almost everyone struggles with saving money. In fact, according to the Fed’s survey of 2022 Economic Well-Being of US Households, 37% of Americans lack the funds to cover a $400 emergency expense — up from 32% in 2021. As such, even those with secure finances could use some extra motivation and help save money — regardless of how much they make.

Using automatic savings strategies is one of the most effective methods to save money. It is also more likely that you will make saving a consistent priority when you automate your savings.

You can automate your saving using the following methods.

Get the most out of every paycheck.

In personal finance, “pay yourself first” means putting some of your paychecks into a retirement plan or cash savings account before it hits your bank account. After all, money saved cannot be spent. Automatic deposits into your savings account or retirement account are available through most banks.

Save with a high-interest account.

Invest in a high-interest savings account with rates 10 times higher than the national average to maximize your savings. Switch banks if you don’t get much interest from your current account. It’s often easier to get a good rate with online banks.

Utilize automatic savings tools.

People can save short-term and long-term for their future using apps like Acorns and Stash. Digit, now known as Oportun, automatically saves you money as part of its AI analysis.

Set up direct deposit with financial automation.

The simplest way to save is to deposit a portion of your paycheck directly. In addition to your everyday spending account, include your savings account information on direct deposit paperwork provided by your employer. Deposit the amount you want in each account. It is usually possible to select a dollar amount or a percentage.

Spend less, save more.

If you haven’t been using your gym membership, you cancel it. Next, set up a recurring $100 monthly deposit to your savings account once that fee is no longer deducted from your checking account.

Save money for each goal.

Your savings goals should be focused on sometimes, not just on rainy days. As such, you can open separate free savings accounts for vacation and down payment.

Keep track of your savings.

Several apps can help you track your savings progress; some savings accounts already include these tools.

Earning more = more savings.

Did you get a raise recently? If so, boost your savings contributions as well. Savings accounts are automatically credited if you have a percentage of your paycheck directly deposited.

Don’t waste windfalls.

An unexpected financial gain, such as a large bonus, inheritance, or proceeds from selling a business or home, might tempt you to indulge in a significant purchase. Ensure the money is in a high-yield savings account before considering other options.

Make sure you are signed up for automatic debits.

Creditors or service providers automatically deduct their payments from your bank account. This occurs periodically, depending on the payment schedule with your creditor or service provider. For example, credit cards, loans, and utilities.

The majority of your utility companies provide automatic payment services, such as electric or gas. Whenever your bill is due, you can enroll or opt-in for automatic payments through your account.

You may have to use your bank account information rather than your debit or credit card to avoid fees.

Pay yourself later.

Are you eligible for a 401(k) plan through your employer? If so, you should contribute part of your paycheck to your retirement, especially if your employer matches. That means when you defer 3% of your salary, they will match the first 3% of your contributions for a total of 6%.

To put it another way, by saving your own money, you gain 100%.

An IRA (individual retirement account) can be opened at a brokerage firm if you aren’t eligible for an employer plan. The maximum contribution for 2023 is $6,500. If you are over 50, you can contribute $7,500.

A monthly automatic transfer from your bank to your IRA account can be set up like a 401(k). Rather than coming out of your paycheck, however, the funds will be taken directly from your bank account.

Plan for annual 401(k) increases.

Annual increase options may be included in your 401(k) plan, allowing you to program automatic increases every year. This means that if you’re currently saving 3% of your salary in your 401(k), you can schedule it to increase by one percentage point once a year, so in year two, you’ll automatically be saving 4%—the deferral rate increases to 5% in year three, and so on.

You’re on the right track when you max out your salary deferral ($22,500 for 2023 or $30,000 if you’re over 50).

As the IRS adjusts 401(k) contribution limits due to inflation, set yourself a reminder in your app of choice to review the following year’s limits in late December and increase your deferrals. By doing so, you will avoid missing out on potential employer-matching contributions.

Pay down your debts.

Debt repayment can be automated, just like savings. You can schedule monthly payments through your bank if you have loans or liabilities with payment plans. You should first direct higher payments to debts with higher interest rates to incur lower aggregate interest charges if you have credit card debt or loans with higher interest rates.

There may be a chance to get 0% financing if you’re lucky.

Invest in tax-advantaged accounts.

As long as you have maximized your retirement contributions and have adequate emergency savings, you can always add the extra savings to taxable investments. After all, too much cash will result in lower returns over your lifetime.

You can outpace inflation by investing strategically in taxable investments, and you are not limited to the amount you can contribute. You can easily set up automated transfers to investment accounts and orders to purchase specific investments, like mutual funds. For example, you can invest $200 monthly in an S&P 500 index fund to dollar-cost-average into the market.

You can’t go wrong with an app when just starting out with automatic investing.

Among the most popular robo-advisers, Betterment has a good reputation. Portfolios are managed professionally using an ETF selection that can be adjusted according to your risk tolerance and when needed. Portfolios can focus on climate change or social impact with Betterment as well.

Even better? Betterment doesn’t require a minimum balance.

Fraud alerts.

Though digital banking makes managing different accounts much easier, who has the time to check all our transactions daily?

As a result, fraudulent charges can slip through unnoticed. As a result, hundreds of dollars will be charged to your card.

A fraud alert, however, alerts you whenever your card is used for suspicious activity. After that, you must confirm the charge. As long as it is, you can go about your business. In other cases, your financial institution can cancel the stolen card and send you a replacement.

In most financial institutions’ websites or mobile apps, you can set up fraud alerts under “My Account’ or “Security & Privacy’. For more instructions, search “NAME OF YOUR BANK OR CREDIT CARD + fraud alerts”.

Keep an eye on your financial accounts and statements.

Your bills should be updated when you automate your finances. Consider checking your account statements every month before automatic bill payments. You should review your budget and bills every couple of months.

Keep in mind that “set it and forget it” doesn’t last forever. Be sure to track your progress, increase contributions, and make any necessary changes.

FAQs

1. What does it mean to automate your finances?

Essentially, you put your money on autopilot by automating your bill payments and savings accounts.

Automating your finances ensures you’re paying your bills on time and avoids late fees. To ensure everything is going according to plan, adjust things periodically once everything is set up. Overall, it helps you organize your finances.

2. Why use financial automation?

In theory, you don’t have to automate your finances. The majority of banks and merchants still accept mail and phone transactions.

However, I’m sure you have other things to do. As such, financial automation saves you time, which is one of its main benefits. After all, your time is better spent on the things you enjoy, not paying bills or investing.

Aside from that, automating your finances reduces the amount of stress in your life. If your credit card information is stolen, you don’t have to worry. A text alert will notify you of suspicious charges.

The final benefit of automating your money is security. Missing a payment, for example, can damage your credit score. But, even while you sleep, your finances will remain healthy if you set your bills to be paid automatically.

3. What kind of accounts can you automate?

Every aspect of your financial life can be automated. For instance, you can automate the following bills:

• Rent or mortgage
• Utilities
• Credit cards and/or loans
• Insurance

Also, you can automate investment and savings contributions, such as:

• Emergency fund
• Short-term financial goals
• 401ks and other retirement savings

It’s likely that you can automate a bill or financial goal.

4. How do I automate my finances?

Using your bank’s automatic bill pay function, you can automate payments to service providers and creditors.

5. Why automate your savings?

You no longer have to manually put money into savings because automation makes it the default. Your savings habit is more likely to persist if money is automatically transferred to them.

Featured Image Credit: Ivan Samkov; Pexels: Thank You!

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