Let’s first look at automating your savings. What exactly do I mean by this? For me it’s meant setting up a recurring automatic withdrawal from my personal checking account to a savings account or, more recently and even better, automatically sending a portion of your paycheck direct deposit into a savings account. Here’s a snapshot of my current setup and how I’m doing that:
Notice 50% of paycheck #1 going straight into our savings account. All I had to do to get this setup properly was to: 1) open an account with Capital One 360 (read more about Capital One 360 in my review), and 2) tell my HR department at work to start sending a portion of my paycheck to this newly opened account. Most HR departments will have a standard form you can fill out to make this happen. However, if they don’t, or you just want an easier way to do it, Capital One 360 has a direct deposit form you can use. Very handy.
Why would you want to go through the trouble to do this? The system doesn’t require you to be disciplined. All it requires is a one-time setup and then you can forget about it. It’s just works on it’s on. Or, to be more accurate, your employer and the banks work on their own to help manage your money. For more on automating your savings and different techniques I recommend David Bach’s Automatic Millionaire.
Automatic Bill Payment
Now let’s look at automated bill payment. This is definitely a topic that I am still learning about as technology progresses, and the security of web based transactions improve. So, while I’m not an expert here, I’ll quickly share with you my methods. As you can see in the diagram above, I have two types of expenses: fixed and variable. By nature, the fixed expense payment are all that I can automate.
While I call them fixed for purposes of the diagram, what they really are are recurring bills. This includes mortgage, insurance, utilities, and loan payments. Basically any type of payment that I am going to be paying every month. In a side note, while it would be nice to have no recurring payments, I’m not to that point yet, so I have to deal with the many that I do have.
So, I’ve got all these recurring payments. What do I do with them? Instead of sitting down every month to write each one of these payees a check, I automate it. I do this by providing each payee (that will allow it) my banking information so that they can withdraw the proper amount from my bank account each month. Most companies will allow this now. I still can’t get away with it for my water and energy bill, but all the others will allow it, and welcome it. This is usually setup fairly easily online or by calling their customer service line. That’s it. Easy right? Let’s look a some of the pros and cons of doing this:
Pros of Automating Your Bills
1. No more late fees. Turning the reins over to the bill company means never being responsible for the timing of the payment.
2. Less time wasted and hassle. Let’s face it, paying bills stinks. Anytime you can take a boring task away from your life, it’s a plus. Spend the saved time with your family and friends.
3. No more (or at least considerably less) checks, envelopes, and stamps.
Cons of Automating You Bills
1. Risk of someone getting your banking information. The assumption is that many different companies (and people within those companies) have access to your banking information if you use this method of auto bill payment. I technically don’t know if this is true. For many people this is the deal breaker. Using the method I described above, you will have given out your banking information to several payees. Each one of those payees is then going to have to keep your information secure. Do you trust them? Are you protected?
I’ve minimized this risk some by only keeping enough money in my checking account to make the monthly payment. Therefore, if my information leaks out, only a small amount of my cash will be at risk. Another thing you can do to minimize the risk is to only give your information to those payees with the VeriSign seal. Site that use VeriSign will have SSL, which “establishes an encrypted communication channel to help prevent the interception of critical information when transmitted over the Internet.”
2. Less flexible. When it’s time to change bank accounts, I’m going to have to tell each of those payees my new banking information. That might be enough motivation to keep me at a bank I’m not happy with for much longer than I should.
3. Overdraft fees. What if one of your bills has a huge incorrect charge on it, and you end up over-drafting on your account? Well, this risk can be minimized by checking your statements every month and keeping a line of credit or overdraft protection on your bank account.
4. Losing touch with your finances. Setting up auto payments can have a negative affect on the overall awareness of your finances. Similar to automating your savings, once your payments are out of sight, they can quickly become out of mind. Again, this risk can be minimized by reviewing your statements carefully every month.
So there you have it…That’s the lowdown on how I simpify my finances by automating them. Hopefully you will find that automating both your savings and bill payments bring success in your personal finances like they have ours.
The Rest of the Series…#1 Track Your Regular Monthly Expenses #2 Pay Off Your Credit Card Debt #3 Get a Job! #4 Contribute to your Employer’s 401(k) and Get That Match! #5 Put Your Savings in a High-Interest Savings Account #6 Track Your Net Worth and Set a Goal #7 Automatic Savings and Bill Payment #8 Live a Frugal Life #9 Buy Your Home the Right Way #10 Part 1: Take Ownership #10 Part 2: Being Intentional
Photo: by Don Solo