How To Automate Your Finances

Spend less time worrying about your finances, and more time relaxing at the lake.

Spend less time worrying about your finances, and more time relaxing at the lake.

Keeping track of all your money movements throughout the month can be a burdensome task. We all have countless bills to pay, various savings goals, and noble charities we’d like to gift to.

What if there was a way to make sure all of these tasks were handled automatically, every month for you? By using technology to your advantage, you can set this up quickly and let it handle your routine payments month after month without lifting a finger.

I still encourage everyone to monitor your finances on a regular basis. Reviewing your spending on a monthly basis helps you keep everything in perspective, and see if your spending is matching up with your goals.

After implementing these 6 steps, you will have your income flowing automatically into your retirement accounts, checking and savings, and paying your bills. By automating your finances, you also help reduce the emotional decisions you may have to make each month. You will save on a regular basis and have all of your bills paid, regardless of what the stock market or other factors are doing.

A systematic approach to managing your monthly money needs is key to achieving your goals.

Step 1 - Direct Deposit Paycheck & 401(k) Contribution

At your work, you have the option to take your paycheck in two ways - either accept a physical check or have the money deposited directly into your checking account at the bank. By direct depositing your paycheck into your bank account, you will see the money available exactly on “pay day” and not have to worry about driving to the bank to deposit the check or remembering to deposit via your mobile device.

Action Step: Ask your employer to have your paycheck deposited directly into your family’s joint checking account (your employer will have you sign a form to complete this).

Next up, be sure you are contributing to your 401(k) or other employer sponsored retirement account available to you. After setting this up, your income will be sent directly to your investment account and invested for you.

As a bonus, the amount you save into your retirement account goes in pre-tax, so you are able to save more to your retirement than you would if you took that same money home to spend.

If you are just starting out with your retirement savings, I recommend at a minimum you save enough to receive the employer match. Increase your savings percentage by 1-2% every 6 months until you reach the annual contributions limits available in your plan.

Action Step: Request to sign up for your company’s 401(k) plan or other retirement plan available (your employer will have you sign forms to complete this).

Step 2 - Monthly Transfer to Savings

Now that you have contributed to your retirement account and directly deposited the remaining income into your family’s joint checking account, it is time to setup some internal transfers. What I mean by internal transfers is sending your money to different categories so each dollar is assigned a job.

The first category is your family savings account. This account will consist of your emergency fund, long-term investment goals (additional retirement savings and college savings), mid-term goals (down payment on a home, new car), and your Health Savings Account.

For your emergency fund and mid-term goals, I recommend using an online bank with a high interest rate. Online banks generally offer a higher interest rate, so are an appropriate place to put your savings so they at least pay some interest (better than none).

Action Step: Setup an automatic monthly transfer from your joint checking account to your emergency fund and mid-term savings account at an online bank with a high-yield interest rate.

Additional retirement savings (IRA or Roth IRA) and college savings (529 Plan) can be setup through your financial planner or various online brokerages. You can automatically transfer money from your family checking account to these investment accounts and have the investments purchased automatically.

Action Step: Setup an automatic monthly transfer from your joint checking account to your IRA or Roth IRA. Also complete this step for your other long-term investment goals, like saving for your child’s college (529 Plan). After the transfer is made, you can setup an automatic purchase of the investments you wish.

Step 3 - Autopay Bills and Loans

Next up, it’s time to pay the bills! Everybody’s favorite pastime, right? Well maybe not, but it’s got to be done to might as well make the process as seamless as possible.

For all of your monthly bills, you can pay them automatically in 2 ways - by credit card or bank transfer. The majority of bills will accept credit card payments, but some (like mortgage/rent, student loans or insurance) may not.

When paying your bills by credit card, you will need to setup a recurring payment to pay the actual bill, and then a recurring payment to pay off your credit card in full each month. This will ensure you never miss a payment, don’t pay unnecessary interest, and keep your credit score in tact.

Action Step: Setup recurring payments on all your bills and loans to be paid either by your credit card or bank transfer. Then setup automatic payments to pay off your credit card each month.

Do you give to charity on a regular basis? Most all charities will accept some form of automatic monthly payment. This will allow you to give throughout the year and keep a balanced budget.

Action Step: Contact the charities you give to and ask about their automatic giving plans or capabilities. You should be able to either transfer directly from your joint checking account or by credit card.

Step 4 - Monthly Transfer to Annual Expense Account

What’s an annual expense account? This is a bucket you transfer money to for those annual or semi-annual payments you make throughout the year. The reason to set this up is so you can spread the payments throughout the year to avoid any big hits to the budget.

How much did you spend on home and car repairs last year? Instead of waiting for these expenses to pop up, be sure to spread your savings out over the course of the year, so you have the money when needed. This helps avoid the need to go into any type of debt to make the sudden payments.

We all like to travel, but be sure you are actively saving up for your annual trips. Instead of waiting for that $2,000 credit card statement to come knocking, save up $170/month so you know you can afford the trip you want to take.

Other semi-regular expenses to think about would be medical expenses, holiday and birthday gifts for family, and auto insurance payments.

Let’s say you spent $1,000 this Christmas through various gifts to family and church. Instead of getting hit with a big credit card statement next January, start saving each month now so you are prepared for the giving this year.

We all know these big expenses come throughout the year, so why not plan ahead of time to reduce the burden? It’s the only option in my eyes.

Action Step: Add up all of the semi-regular expenses you anticipate throughout the year as described above. Divide this total by 12 and automatically transfer this amount from your joint checking account  to your Annual Expense Account. When the expenses actually come, you will be prepared to pay in full instead of taking on consumer debt.

Step 5 - Monthly Transfer to Separate Spending Accounts

Your final transfer is a pretty fun one. I recommend you and your significant other keep your own separate spending accounts for personal use. With all of the previous accounts and transfers, you have taken care of your common family goals and needs. Now it is time to take care of yourself.

These individual spending accounts are to be used for whatever you personally want - guilt free! As a couple, you may have arguments over how your discretionary income is spent. This way, you are both able to spend your “allowance” however you desire. Life is short and you work hard for your money, get out there and live a little if that’s what you want to do!

Action Step: Setup Separate Spending Accounts for both you and your significant other. Mutually agree upon a monthly allowance for individual fun and transfer this amount from your joint checking account to your Separate Spending Accounts.

Step 6 - Spend (Or Give) The Remaining!

And now, the most fun of them all - spend what’s left! Now you may be thinking, “I just saved toward all of these other goals and don’t have anything left, what do I do now?”

If that is the case, it is time to go through your budget again and tighten up any loose ends, or find ways to increase your income. Both of these options are available to almost everyone, it just takes a little focus and dedication.

However, if you are one of the lucky ones and still have money leftover, get creative. Do you want to increase savings toward a big vacation, or how about that country club membership? For the philanthropically minded individuals, consider setting up a Donor Advised Fund to make your charitable contributions to.

Action Step: Take some time to think. How can I create more room in my budget, either by reducing expenses or increasing income? What can I do with this discretionary money that’s left over? Think BIG and remember to keep your most important life aspirations in front of you at all times.

Automate Your Finances

Let’s take a minute to recap. If you take each of the steps below, you will have your monthly finances on autopilot, leaving you more time to spend with family and less time worrying about which bills need to be paid.

  1. Direct Deposit Paycheck and Save For Retirement

  2. Monthly Transfer to Short and Mid-Term Savings

  3. Autopay Bills and Loans

  4. Monthly Transfer to Annual Expense Account

  5. Monthly Transfer to Separate Spending Accounts

  6. Spend (Or Give) The Remaining!

Take a few minutes this week to automate your finances, and you will be sleeping peacefully in no time.