The Benefits of Automating Your Personal Finances
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For many people, managing their personal finances can feel like a test of willpower. Sure, you may know that you need to contribute to your savings account each month, but if this month is your birthday, you may justify spending that $200 on a treat for yourself. Even if you have a budget, these challenges are bound to rear their head occasionally.
Automating an aspect of your finances is one strategy to address this issue and build better behaviors around money. Whether that means setting up automatic payments for bill payments or car payments (or making automatic transfers to your savings account if you struggle to save money), the important thing is to identify your goals and start automating.
With how simple technology makes it to automate your finances, you may be wondering what the benefits are of putting your personal finances on autopilot. You may also be concerned that taking a “set it and forget it” approach could prove detrimental to building the skills and mindset you want regarding money. Keep reading to learn about some of the best ways to automate, and start thinking about using automation to revitalize your financial goals.
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Top benefits of automating your finances
If you bank online or pay bills online or through an app, you likely have the option to automate your payments. Many people also automate other sorts of financial transactions, like contributing to a savings account each pay period or investing in college or retirement funds. Most employers even offer you the ability to automatically deduct a portion of your pay and send it to your 401k before it even hits your bank account. Here are some of the biggest benefits of automating these financial transactions.
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Streamline how you manage your finances with automation
For some people, automation is about streamlining processes that may already be in place. Things aren’t bad, per se, but with some automation, you could think about them less and accomplish them more seamlessly.
For example, if you have direct deposit set up for your job, you may deposit a portion of your paycheck into your checking account and another into your retirement account. While it’s true that you could have the full amount sent to your checking and then set up another transfer to your retirement savings each month, automating this way helps you eliminate an extra step or process.
Especially if you have a variety of savings goals outside of your retirement plan, this can streamline the way you approach money management. When you eliminate the number of decisions you have to make about your money, it becomes easier to instill in yourself the real philosophies you have about money.
Again, this comes back to the idea that if you see money in your checking account, you may think more about account balances than your financial goals when weighing the pros and cons of a new purchase. When you set up automatic savings, you don’t have to think twice about whether or not that nice sushi dinner is eating into your emergency fund. Not only is your emergency fund in a separate account, but it’s also already been contributed to for the month!
Buy yourself more time to perform more important tasks
Similar to the previously mentioned benefit of automating your finances, when you set things up to work like clockwork, you have more time to focus on other tasks (financial and otherwise). It takes brainpower and time to pay your bills manually. With autopay features for your credit cards, bills, and rent or mortgage, you have more time to spend elsewhere.
With that extra time, you may commit to taking a more in-depth look at your budget each payday. Or, perhaps you’ll pick up a small side gig that can be done in just a few minutes each day. Whatever you choose to do is up to you, but it’s important to think about the benefits that come from giving yourself back time on an already busy day.
After all, why worry about missing a due date or paying your bills on time when you can set it up to be taken care of for you? With automation, those concerns are a thing of the past, allowing you to spend more time monitoring your budget or truly working towards the financial future you’re after.
Automation allows for greater efficiency
Once you’ve identified certain goals as central to your financial planning, one of the best ways to achieve them is to set up an efficient way to work towards them.
If you’ve set up investment accounts for your retirement and two kids’ college funds, automating things will make managing all three more straightforward and efficient. Especially when it comes to investing, consistency over a long-term timeframe is key to making gains in the stock market. As such, the most efficient process for contributing to these accounts can offer a helpful boost to your retirement account or help you pay for your children’s college education.
Automation is also helpful for eliminating redundant tasks in your personal finances, such as paying bills. Thanks to automatic bill payments, the only thing you need to worry about regarding your internet, utilities, or streaming services is the potential of an overdraft. However, if you’ve set up an automated system that carefully divvies up your paycheck as needed across different accounts, you won’t even have to worry about that!
Automating your finances can improve financial security
True story: I used to rent an apartment in Chicago where I had to send paper checks to my landlord each month. Not only was this tedious, but one day one of my checks was stolen from the mail, copied, and digitally manipulated to create a bunch of forged checks made out to other individuals as part of a scam. Suddenly, my checking account was thousands of dollars in the red, and I could see the digital scans of the forged checks in my online banking portal as the reason why.
From then on out, I scheduled checks to be automatically created and mailed using my bank’s website rather than handwriting checks and sending them in the mail. This created a much more secure way to pay rent; however, thanks to payment processing apps like Stripe and PayPal, it’s easier to securely pay your rent and other bills online.
Beyond the potential for scams like the one I was involved in, sending paper checks in the mail for any bill is risky since you can’t always confirm that the payment will make it in time. This can put you at risk for late fees — even if you think you timed your payment right by making it to the mailbox in time.
Whether you deduct your bills from your checking account using an ACH debit or a credit card and earn points, automating bills and rent can be a more secure way to protect your finances.
For example, if I’d been able to pay my rent with a credit card online, even if my card was compromised, I would have had the charges reversed almost instantaneously. By writing and mailing physical checks, my debit account was completely depleted, and it took more than a week (and two police reports) to fix the whole mess.
Boost your credit score by automating your personal finances
Did you know that aside from credit utilization, missed payments are one of the biggest factors impacting your credit score? The easiest way not to miss a payment on your credit card is to set up automatic payments.
If you’re carrying debt, it is important to pay more than the minimum payment to pay down your balance (using the snowball or avalanche method). However, simply paying the minimum each month is the next best way to avoid having your credit dinged for missing a payment.
When you have auto payments set up for your credit card, missed payments become a worry of the past — and ultimately contribute to you maintaining or improving your credit score over time. This can help save you thousands of dollars in your lifetime, as having a better credit score gives you access to better interest rates.
Working With Advisors Can Provide More Security than Going at It Alone.
- SmartAsset's free tool matches you with up to 3 financial advisors that serve your area in 5 minutes.
- Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests.
Pros and cons
While there are a lot of benefits to automating your personal finances, there are some drawbacks to keep in mind, too. Here are some pros and cons to weigh as you consider whether automation is right for you.
Pros
- Automation keeps you on budget. If you set up automatic deposits to various savings, investment, and checking accounts, it becomes easier to stay on budget because each account balance is relevant and reflective of the category that the account corresponds to. Especially for users of the envelope method of budgeting who would like a digital approach to the tried-and-true method, this can be huge.
- You can avoid mistakes by automating payments. Humans make errors. However, when you’re automating your finances, they don’t have to be financial ones. From avoiding late payments or mistaken transfers to the wrong account, automation keeps things working appropriately by design.
- Automation saves time. Having to pay bills manually is a drag and takes up valuable time. How you use your free time is up to you, but one thing is for sure: you will be grateful to have eliminated an unnecessary, tedious task from your day.
Cons
- There might be some security risks with online payments. There’s always a risk of putting your credit card information into a payment portal online or putting any financial information on the internet for online bill payments. Even so, physical checks aren’t any more secure, and by observing common sense online security practices, you shouldn’t have to fret too much about security risks.
- Automation means you have less flexibility. While some people may say that the rigidity of automation is a benefit, those who value flexibility in the approach to personal finance may find automating certain payments or transfers too restrictive.
- Automating could cause you to “fall asleep at the wheel.” Just because you’ve set up your payments and bills on autopilot doesn’t mean that you shouldn’t be paying attention to your bank account or budget. Regularly checking in with your finances is an important part of being responsible in personal finance—automation just means that you’re checking in rather than executing and analyzing.
The bottom line
Thanks to the internet and online banking, it’s easier than ever to automate your personal finances. Especially if you’re someone who has been struggling with adopting the right mindset and behaviors to set yourself (and your bank account) up for financial success, automation can be a major boon.
Whether you’re simply eliminating the tedium of paying your electric, gas, water, and internet bills or are automating your way to the financial life you want in retirement, the simple decision to automate can pay big dividends over time. With automation, you can save time, streamline your budgeting approach, create a more efficient way to manage your money, and even boost your credit score. While there is a small investment of time and some strategic planning involved, once you’ve set up your automation, you can mostly forget about it.
Of course, you don’t really want to forget about it. Checking in on your finances daily, or at least weekly, is important when it comes to staying on top of your finances. Some critics of automation will point out this fact and say that it’s easy to fall asleep at the wheel and think your finances are taken care of just because you’re automating things. Other detractors prefer a more hands-on approach and the flexibility that comes with doing things on their own. Keep in mind that those people have analyzed their behavior or time and decided that this is an okay sacrifice for the gains they get in return.
Whether or not you choose to automate things is totally up to you. However, as you can see from the above list of benefits, there’s likely more to gain than lose from trying it out for at least a few months.
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Writer
Brent Ervin-Eickhoff is a Chicago-based writer, stage director, and filmmaker with a background in digital marketing and content creation. In addition to Joy Wallet, Brent has written for Complex, Volkswagen, HowlRound, Picture this Post, and Third Coast Review, among others. He currently serves as the Associate Director of Marketing for Content Creation at Court Theatre at the University of Chicago. Brent graduated from Ball State University with Academic Honors in Writing.
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