Tom Ford, the famous fashion designer, said “time and silence are the most luxurious things today”. So why waste time on your finances if it could be better spent elsewhere? I am a big fan of automating as much as possible when it comes to finances. As well as freeing up time, automation can save a fortune in late fees and prevent black marks on your credit report just because you forgot to pay a bill. Internet banking and direct debit facilities make it easy to automate much of your financial admin, but just because you can, does it mean you should?
Automating your finances can take a few hours to set up, but when it’s done, life is easier.
Remember this before Automating:
- Don’t automate bad habits, as they only get worse. Fix your spending habits first.
- Automation is not an excuse to neglect your finances. You still need to keep on top of the money flows in and out of your accounts.
4 steps to automate your finances
1. Work out where you’re at with your money
- Can you pay every bill on time without worry? Or do you struggle with some payments?
- What does your Money Personality tell you about your need for involvement? Do you always read your bills? Or do you avoid thinking about money?
- Do you have reminders set up so you never miss a payment? Or do you frequently pay a few days late?
If you're financially stable and comfortably pay your bills each month, automating (at least some) payments is a great way to go. If you don’t always have enough money in your account to meet your bills, you’re probably not ready yet.
Make a list of your monthly bills; include the biller, the amount and due date. Remember to schedule transfers between your accounts to help you achieve your goals.
2. Get Set Up
Group your regular payments into 3 categories and decide if you want to automate or manually manage that category.
a) Transfers between your accounts
Set up automatic transfers from your pay to your savings accounts (have one for each goal) and any debts you are paying off. This ensures your top priorities take precedence and are not forgotten.
b) Bills for Fixed Expenses
Bills like rent, insurance, gym membership, and subscriptions such as FOXTEL are similar each month so these are prime candidates for automation. You know when these payments are due and you don't need to review them because they don't vary.
Pay your fixed expenses by credit card, unless there is a surcharge. In which case set up a direct debit from your main bills and expenses account.
c) Bills for Variable Expenses
Your bills that vary each month (like power, gas, phone, internet) are a little more controversial. I still like to automate them but it is important to keep a close eye on the amounts (before the due date) to pick up abnormal usage and billing errors.
Get onto monthly payment plans for your electricity and gas. This saves planning ahead or getting stung in winter. You can pay a set monthly amount, which is calculated based on your average usage. Any discrepancies are adjusted at year-end.
3. Automate Your Home Loan
Banks like to set up your monthly payments as a direct debit (which puts them in control). If you plan on making additional repayments to pay off your loan faster, get the bank to set the direct debit up for the minimum payment. Make additional payments yourself, and use the direct credit method for greater control of your money. Line-up your mortgage payment/s with the date you get paid so house and home are always prioritised. You’ll save some money on interest too.
4. How and When to Automate Your Credit card Bill
Once you’ve got your credit card bills under control and you pay the full balance each month, you’re ready to automate. This is an expensive bill to miss even by a few days. Late fees and loss of interest free periods add up. Most credit card issuers will let you set up an automated payment which covers off the full balance due on the date you specify. If you have aligned your due date with your pay date, then this will be one of the first payments to come out each month. Set up a reminder for (say) five days before it’s due to make sure there is enough money in the account.
Tips to make it work
- Use a credit card wherever possible. This avoids the risk that the payment will bounce because of lack of funds. Bounced payments can be expensive.
- Set Up Calendar reminders for all regular bills so that you know when it will go through and for how much.
- Avoid extra fees for credit card usage. These small fees may not seem such a big deal, but these fees can add up over time.
- Review your bills. Automation is no excuse to ignore your bills. They still need to be checked to make sure there are no errors, you still need the service and that the payment is actually processed. Set aside some time on a fixed day each month to go through them.
If you don’t consistently review your purchases, you will have no idea what is going on and could be missing billing errors or bigger problems with your spending.
If you don’t want or are not ready to automate; set aside some time each month to review your purchase receipts and statements. This way you stay in control of your money, and still get the stress relief and savings that come from Automation.
I set aside ‘money me time’ at the end of each month. In just a couple of hours I check everything and save hours compared to if I pay everything manually. In a world where most transactions are electronic and your money is exposed to multiple threats each day, its important to check everything.
Sherpa's Money Tips
- When you spend money, put every credit card receipt into an envelope. When the charge appears on your bill, take the receipt out of the envelope and bin it or file it.
- Withdraw the same amount from the ATM each time. This way you can easily identify rogue or double charges.
Automation is a great way to save time and hassle and beat late fees. And ‘money-me time’ is a way to make sure you’re not paying for stuff you don’t need.
With over 25 years in Financial Services from consulting to management, Vince Scully is the go-to guy for wealth management and financial advice. Before creating LifeSherpa, Vince founded the Calliva Group; a fund manager, product issuer, adviser and lender. Vince is an adviser to the Wealth Management Industry, and prior to his role as CEO at Calliva, a senior member of Macquarie Bank’s infrastructure team.