Why You Should Let Technology Take Care of Your Finances

Before you turn on the auto-transfer and auto bill pay functions, you need to create a savings buffer. It's no use setting all of this up if one month you run out of money and create a cascade of overdrafts and late fees.
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We've all been there: standing in line at the grocery store, watching the items add up, stressed we don't have enough in our account to cover it all. Anxious we may have to put items back if we overdraw.

How embarrassing.

Yet it happens all the time. And thanks to technology it's totally avoidable.

I'm not talking budget. I'm talking about automating: bills, savings, and spending. Automating means freedom from the scene I described above.

Instead, you can pull out your cellphone, open your preferred money-tracking app, and glance at what's left in your account.

There is no reason not to know how much money you have and whether or not you can spend it.

This is why I teach my clients, the beauty and simplicity of financial automation, because budgets get broken and have to be reworked. Unexpected life events can get expensive.

But you still have to keep track of your money. Short of hiring staff to take care of everything for you, automation is the next best thing. If set up right, automation makes the best decision you meant to make, for you.

Here's how to automate your finances:

Step 1: Gather Information

Make a list of all the bills that can be automated either, through your bank or through bill pay services, like Mint Bills. Bill pay services often charge an additional fee, so if your bank offers direct bill pay, use it as much as possible.

Step 2: Set Up A Separate Bill Pay Account

This account will be used only to pay fixed/recurring monthly bills.

If you and your spouse each have income flowing into your own personal checking accounts, set up an auto-transfer from each account into the bill pay account, bi-monthly, so you can both contribute to paying bills. Even if you don't have a spouse, it is still a good idea to have separate accounts for variable spending and bill paying.

Now add up what all of your bills average per month, add a 15 percent buffer and set up an auto transfer from the checking account(s) that your paycheck gets deposited into, to your bill pay account on the second and sixteenth of the month.

Step 3: Batch Your Bills

This makes the most sense if you get a paycheck twice a month, but even if you are an entrepreneur or small business owner, I still think it is helpful to have your bills divided into the first and second half of the month, instead of having everything due all at once, or scattered randomly throughout the month.

To batch your bills you just need to call the customer service number for each bill, explain that you are batching your bills and would like this particular bill's due date to be changed to either the fifth or twentieth of the month. This way if your paychecks hit your account on the first and fifteenth, you have a couple of days to make sure the transfers go through to the bill pay account before all of the bills go out.

For example, I set my mortgage and a couple of small bills to be due on the fifth and all other bills on the twentieth, to get the amounts roughly even.

One more way to batch your bills and earn rewards points at the same time is to run any bills that you can through your rewards credit card and then set that card to automatically pay the full balance every month on twentieth.

Step 4: Create A Savings Buffer

Before you turn on the auto-transfer and auto bill pay functions, you need to create a savings buffer. It's no use setting all of this up if one month you run out of money and create a cascade of overdrafts and late fees.

I recommend saving up enough so that you can put two full months' worth of fixed/recurring bills into the bill pay account, before you turn the system on. That way you will always be a bit ahead of the game in case one bill comes in unusually high.

After your bill pay amount goes out of your spend account every two weeks, you should also set up an automatic transfer to savings from that account.

In Elizabeth Warren's excellent personal finance book, All Your Worth, she promotes the 50/30/20 rule, which I have adopted myself. This rule involves keeping your fixed costs to 50 percent or less of your monthly take-home income, putting 30 percent towards variable spending, and putting the last 20 percent towards saving and debt payments.

Your credit cards are already being paid out of your bill pay account, but if you can auto-transfer 10 percent of your income into savings every month you will be well on your way to building up your emergency fund, funding retirement accounts or reaching other savings goals.

Step 5: Automate

Once you have your savings buffer in place, you can go ahead and turn the system on. Go into all of the bill pays that you have set up, turn them on, click monthly recurring, pay in full each month, etc., and watch the system operate in all it's lovely simplicity and glory. Check in on your accounts at least twice a month to make sure that all payments and transfers have happened as they should, but you will no longer have to "manage" paying your regular, monthly bills or think about how much you want to save that month.

What is left in your spending account after transferring enough to pay your bills and fund your savings, is yours to be spent, guilt-free on things, like groceries, eating out, shopping, manicures, movies, whatever. Even if every penny of that money gets spent, you will still never be late or short paying bills.

And with every on-time payment and reduction in your debt, your credit score will be rising as well.

If financial willpower is a struggle for you, it's time to use the free resources provided by your bank. Automating outgoing payments and account transfers makes it easy to spend the money you have leftover, knowing technology is taking care of your finances.

It's like a built-in virtual assistant who pays all of your bills on time every month and helps you save for the future but doesn't require anything from you after the initial set up.

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