I have recently shared ideas to make an account inventory, track everything in one place, create your first budget, and start saving for retirement. I kept mentioning automation. Now that you have a good understanding of your money, it is time to automate it to save you time, money, and headache.
What is Financial Automation?
Automating your finances means setting up recurring funds transfers so you don’t have to think about your money. From your paycheck to your mortgage payment, you shouldn’t have to do a thing.
A funds transfer generally takes the form of an ACH. An ACH stands for an automated clearing house transfer. This type of transfer sends funds from one bank to another using the Federal Reserve routing system.
What many people don’t realize, however, is that you can automate a lot more than your direct deposit. You can set up transfers between accounts in your bank or automatic bill payments to other banks and companies. You can automate everything!
In my financial life, I have automated investments, savings, credit card payments, auto loan payments, student loan payments, and my mortgage payment.
Automating means you don’t have to worry about moving your money around or going to the bank. Everything just happens for you the way you set it up.
How to Start
To get yourself started, automate your paycheck. If you get paid every week, every other week, or twice a month, you can save yourself a lot of trips to the bank with direct deposit. Most employers offer direct deposit and may even allow you to split your check between multiple accounts.
Once that is setup, you can setup automated recurring transfers and bill payments from your main checking account to other accounts and billers each month.
I suggest starting by automating your rent or mortgage payment and any fixed amount bills you pay each month. Variable bills like credit cards might change and surprise you, so just start with bills that are the same each month.
If your bank doesn’t offer free, online transfers, it is time to look for a new bank. One of the most popular online checking accounts, one I have myself, is 360 Checking from Capital One 360.
Draw an Automated Money Map
To visually see where your money is flowing, I suggest drawing an automated money map. You can make it fancy and draw it out with a computer, or just do it by hand so it is quick and easy.
Your map should be a step-by-step diagram tracing how your money comes in and goes out each month. It should start with your direct deposit paycheck and end with bills and savings.
To get an idea of how it should look, take a look at my example map below. These are all made up numbers for what a typical automated plan should look like.
My Automated Plan
My money map is a bit more complicated, but the idea is the same as above. You should always customize your automated plan to do what you need. No two people’s maps will look the same.
Need Help Getting Started?
Any questions about getting your own automated plan started? Let me know in the comments.
What about having the bill payments put directly on to your credit cards to gain cash back? I am the type of person that pays her credit cards in full every month and I am always looking to maximize rewards.
That is a great idea when you can do it. Most billers I deal with don’t allow you to put payments on your card. When you can, always go for it. I use a card for my cell phone bill and Netflix.
I’ve been doing automated payments for a while now and it makes life much easier. Only thing I haven’t automated is my transfers from my checking to savings but I plan on doing so very soon.
You can do automated savings one of two ways. You can do the recurring transfer from checking to savings or you can split your direct deposit from your employer. Doing that makes the process even more thoughtless so you never get tempted to spend the money.
I have an automated sweep into my savings account each month, auto contributions to my 401k, and auto pays on my bills. I love how much better online banking has become over the years!
It is pretty amazing how far banking has come over the last decade. Just think, people used to actually go to the bank every payday to deposit a paper check and get some cash back for regular spending. What a time waste!