You will hear many financial planning professionals tell you that automating your finances is one of the best ways to save, invest, and keep a budget. You can direct deposit your paychecks, have your employer automatically deduct 401k and health insurance premiums, have ALL of your monthly bills auto-debited from your bank account, and then setup your credit card to be paid in full at the end of your billing cycle. In the spirit of Earth Day, let’s also include paperless statements in the realm of automation as well…since walking to the mailbox and opening an envelope is pretty manual.
I’m sure at least a few of you are aware of the David Bach, a personal finance guru that preaches automated finances. I can see the logic behind it. Less time spent on the tediousness of paying bills, going to the bank, and counting out every last penny. This leaves more time to spend with your family, on hobbies, or perhaps leaving you open to spend more time at your primary wage-earning gig. Theoretically, it incorporates the psychological aspect of your personal finances. Money that is out of sight tends to be be out of mind. If you automatically debit your student loans and phone bill from your account each month, it doesn’t leave you the option of not paying the bill, or paying it late. Quite simply, you are forced to save and spend more wisely.
I love convenience in my life, and in a perfect world I think that it would be hard to argue with the logic behind this. Unfortunately, we do not live in a perfect world. I used to automate every bit of my finances, and I still automate most, but not all of them anymore.
I DO AUTOMATE MY: Direct deposit, monthly brokerage deposit, gas bill, electric bill, student loans, car payment.
I use the monthly budget allocation for my utilities, and this allows me to pay the same amount all year with a true up at the end. My brokerage deposit is a fixed amount each month, as are my student loans and car payment. Also, I received a .25% discount for directly debiting my student loan payment from my account…this is just smart business!
I DO NOT AUTOMATE MY: Credit card payments, mortgage, phone bill, car insurance, or cable bill.
In my experience, expenses that I did not incur have managed to show up on my credit card statements more than once. A credit card company is much more vested in determining whether or not a charge is valid before they receive the money rather than after. My mortgage payment can change each year, and sometimes more frequently, depending on whether the escrow account is over or underfunded. To be honest, I don’t want to overpay my mortgage anymore than I want to underpay it…mortgage interest deduction is still quite beneficial to me. Phone bill, forget about it! Verizon managed to improperly charge me 6 months in a row (even after I called them each month) for applications I never downloaded or used. At the end of each phone call they asked me if I wanted to set my account up for auto-pay, it took everything I had not to go off on them right then and there. I don’t auto-pay my car insurance because I receive a deep discount for purchasing it in 6 month increments. Also, I do not auto-pay it every 6 months because I want to make sure I’m still receiving the best possible rate out there. Lastly, the cable company (doesn’t even matter which one) could stress out the Dalai Lama himself. I initially setup my account on auto-pay because they offered me HBO free for 6 months if I did. After a few months I began reviewing my bills, and I realized they had been charging me more and more each month… promo periods were ending, movies I hadn’t rented were included, etc.
Let me leave you with one last example, this is the TRIFECTA of what can go wrong with automated finances. Consider that you have phone bill with incorrect charges on it. Now let’s consider that your phone bill is automatically paid with your credit card each month (ya know, for the rewards points). Now lets further consider that your credit card balance is automatically debited from your checking account each month. Finally, everything is on paperless statements because we’re feeling green lately, but that statement is sitting in your email spam box! An incorrect bill, within another bill that is automatically paid for, and you forgot all about them because there wasn’t a statement brought to your attention last month. Should you discover the error, and feel that you want the money back, how automated do think that process will be???
Don’t spend too much time and financial managment in areas that don’t necessarily need it. However, don’t try and automate every aspect of your financial life just yet…as I’ve found out, the world isn’t quite ready for it!
