This question came up on the blog last week and I wanted to expand some more, and I’m sure many of you have wondered this exact thing.
The topic is banking automation, and the debate is pretty rough. There are people who say never do this because you lose track of your current situation. There are others say that banking shouldn’t be difficult – that you should automate everything.
If you are doing a good thing and saving money, you don’t necessarily want to force yourself to have to go through the manual process every month. Certified Financial Planner, Carl Richards, mentions the same idea in our interview recently.
Here are some things to keep in mind when deciding what to do.
Will You Stick To Your Goals No Matter What?
If you have less extra money left over one month and stop to think, if I transfer that money to my savings account I’m going to be really scraping by – I won’t have the freedom to spend very much this month.
You should probably automate your savings if this is the case. Having to manually transfer that money is going to put you in a very tough situation in terms of decision-making. Otherwise, it will make it much more difficult for you to save.
Once you go through the hard work of deciding how much you need to save, don’t put yourself through the struggle of having to make that decision over and over again each time it’s the day to transfer your money.
In this case, it would be a wise idea to put it into an automatic transfer, so you’re not second-guessing yourself.
You start thinking of saving as a fixed expense, much like an electric or gas bill. Yes, the money is still yours technically – it’s in a savings account – but you can still treat it like an expense because it’s a certain amount of money you are taking out of your checking account each month. This will help make it more commonplace for you to save.
You will start getting used to living on just a little less each month because you can “technically” count this savings transfer as a recurring expense. It might be hard at first, but once you get used to having that money come out every time, it will start becoming easier to manage your spending to this new budget. You’ll learn to live on the money that you do have, as opposed to also spending the money that will now be moving into your savings account.
Do You Have the Memory of a Goldfish?
I sure do, a lot of my friends call me Dory because of this. Memory is not one of my strengths and I’d probably forget where I put my pants if I weren’t wearing them. Does this sound like you?
If it’s automated, a machine is doing it and you don’t have to think about. Plus, your subconscious can’t “accidentally” forget to save for you.
Money just gets transferred automatically. Brilliant!
Why Automating Bills Might Not Be Ideal
While automating your savings is almost always a good idea, automating your bills might be questionable.
Why you ask?
1. You can get complacent in how much you’re spending
2. You may stop trying to save on your fixed expenses. You can usually save on certain bills every few months – when you automate them you just take it as it is.
It’s helpful to almost force yourself to make your bills payments each month, because you can’t get stuck in this complacency. You’re required to think about that $100 cable bill, or that $100 electric bill (maybe I can shut off some lights, or open the windows and turn off the A/C).
With a cable bill, I typically call them every few months to see how I can save money with their new promotions. If I had my bill automatically paid, I probably wouldn’t be looking so closely at it.
Looking at each bill each month can help keep you in alignment with your goals. If you have not optimized your bills all the way down to where they can be, there is probably more money to be saved and this could be the path towards achieving some goals.
Especially when you’re first starting to get out of debt- you want to really be paying attention to where every dollar goes so that you can maximize the extra payments you make on your debt.
I don’t automate my bills either because I like to keep track of them manually. This helps me see – down to the penny – how much extra I can put towards my student loans each month. While I’m getting out of debt I’m not going to automate my bills, just so I can keep better track. However, I do automate savings because my Dory brain would forget.
I also automate my student loan payments because of the 0.25% interest rate reduction. This post breaks down how much you can save and lets you see the calculations to help you decide if it’s right for you.
With student loans you’re practically forced to make those payments each month – they won’t get dismissed, even in bankruptcy, so you’re kind of stuck with them. That is why I am okay with automating those payments.
If You Do Automate Your Bills…
If you do want to automate your bills, that’s cool too. I would suggest that you to set up a reminder every 90 days or so that reminds you to check where you could be saving money. Make sure you go over each bill and find new opportunities to save.
If you’re using Google Calendar to do this, make sure you do have the reminder box checked. Sometimes I’ll put events in there and it doesn’t remind me unless I physically edit the event and add the reminder.
I usually set the reminder to come via email because it’s more permanent in a sense than a push notification on my phone. I don’t have the best memory, so if I happen to miss a phone reminder or it goes off when I’m busy, I might accidentally hit “dismiss” and then it’s gone forever.
With an email reminder, it’s almost like a paper trail because it’s stuck in your inbox, and you physically have to go in there to delete it. I feel like it’s a little more permanent than a push notification on your phone.
Automation keeps you from forgetting, making hard decisions every month to take money out of your checking, and ultimately will help you reach your goals more efficiently.
With fixed expenses, there is typically a bill collector holding you accountable for getting those things paid each month. You don’t want your electric turned off, so you pay the bill.
But with saving, no bill collector is going to come around and bully you into doing it. It’s your responsibility. Sure, your future self might bang you on the head for not saving once you’re older, but it’s a delayed punishment.Unless of course, you join my coaching course, then I will (metaphorically) bang you on the head AND hold you accountable. 🙂