If you start automating your bill payments, not only will you save a lot of time, you’ll also save a lot of money. It’s one of those little things that you can do to drastically improve your life. With a little set-up, you can basically put your personal finances on auto-pilot.
Here’s how to do it:
1. Start with a comfortable cushion
In order to automate your finances without the risk of overdrafting, you need a comfortable cushion in your checking account.
Start by writing down your monthly income. Then, list your fixed monthly bills, such as rent, internet, utilities, and phone bills. Follow, this with a list of variable expenses, such as groceries and gas. Next, decide how much you want to set aside for savings, retirement, and guilt-free spending.
Once you have all this information down, you can decide on the goal you have:
- If you have high-interest debt, your priority is to get rid of it.
- If you are debt-free, your priority is a 3-month emergency fund.
- If you have a 3-month emergency fund, your priority is investment.
- A good goal to have is to set aside 5% to your Roth IRA, 5% to your savings account, and the remaining 90% to your credit card debt and miscellaneous bills.
If you need to increase your cushion, cancel all of your discretionary subscriptions if you can: cable, Spotify, magazines, newspapers, the gym, etc. Then, start paying á la carte for everything, such as a day pass for the gym or a rental for a movie. You will find that you probably use these services a lot less often than you think.
2. Make a list of all your accounts
In order to automate your monthly payments, you need to have a list of all your accounts, along with URLs, usernames, and passwords.
Here’s a list of the accounts you are likely to have:
- Checking account
- Savings account
- Credit card account(s)
- 401(k)
- Roth IRA
- Utilities and bills
- Subscriptions and memberships
3. Use a credit card to set up automatic bill payments
Almost all subscription services and online merchants allow automatic payments. Don’t waste any more time signing in each month to pay your bill. Log into your account and set up automatic payments. But, you never want to allow a company to draft automatically from your checking account. Give them a credit card number instead.
The reason you should use a credit card is because automatic charges are sometimes wrong and it is a lot easier to fight a credit card charge than it is to fight a debit card charge. If a mistake is made and they accidentally overcharge you, your money isn’t at risk. Remember, the credit card money isn’t actually your money, so disputing the charge is as simple as contacting your credit card company.
Even if you can’t set up automatic payments — through your building’s rent portal for instance — you can still set up automatic bill payments through your bank.
4. Link your accounts
In your online banking system, you can link accounts and set up automatic payments and transfers.
- If your employer offers a 401(k) match, make sure you are set up and that the maximum amount is automatically funded each month. This part of your paycheck automatically foes to your 401(k) while the rest gets direct deposited into your checking account.
- If you have a Roth IRA, connect it to your checking account and set up an automatic transfer every month. Aim for 5% of your monthly income.
- If you are able, set it up so your credit card gets paid in full every month by linking your checking account and setting up an automatic transfer every month. Make sure you set a reminder to check all the credit card charges beforehand so you have time to dispute anything before the transfer goes through.
- Set aside a comfortable amount each month to transfer to your savings account. You can even set up sub-savings accounts for things big expenses like vacations and down payments.
If you don’t have any high-interest debt, it’s a good idea to automatically transfer some amount of your paycheck each month to your savings and retirement accounts. You can do this from your online banking portal. If you have questions, you can ask your bank how to set up automatic transfers.
Instead of relying on sheer willpower to pay the bills and transfer money to savings and investment accounts, use the power of automation technology to improve your personal finances while saving time and reducing stress.
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