How to Automate Your Finances

After one-time actions, the next best step is to automate your finances.

What are the benefits of automation?

It's a one-time action that repeats on its own. You set up an automatic transfer to your savings account, and it happens each month.

It's effortless.

You don't have to worry about forgetting to pay the bill or save.

It takes more work to stop.

One month, my expenses were unusually high, so I decided that I wouldn't put any money into savings that month. But I didn't stop the transfer in time. Instead of transferring the money back, I figured out how to cover expenses with the money I had.

In another incident, I rebuilt my emergency fund using automation. Once I set it up, I felt like I finished because I knew it would happen by itself.

THE 401(K) STUDY

A recent study revealed that 401(k) plans with automatic enrollment saw a 93 percent participation rate compared with a participation rate of 70 percent for plans with voluntary enrollment. When it hap- pens automatically, people are more likely to be involved than if they have to sign themselves up.

In fact, under the SECURE 2.0 Act, starting January 1, 2025, employers who offer 401(k)s will be required to enroll eligible new employees automatically.

When to Use It

Automating your savings is a great way to save for weddings and retirement. As discussed in previous articles, if you're going to wait until after you paid off all your expenses and then put money in savings, you're unlikely to have anything left. Automating ensures that it happens.

It's also a good idea to use automation for bills to avoid fees. Obviously, this requires living with- in your income and checking your accounts before payments go through to make sure there's enough money in the account.

Automatic savings allows you to make other smart finance decisions. When I didn't have an annual fund, I needed to stop automatic savings in the summer because I was missing my wife's income. Then, it took me time to restart the automatic savings and create that annual fund.

A Word of Caution

Companies know how powerful automation is, and they use it against you. Subscriptions, member- ships, and auto-renewals all bank on the automation factor. Many businesses offer a free trial that requires inputting a credit card number. This way, customers sign up, get automatically enrolled, and forget to drop out. Your default is to leave it be.

In general, automation is a good idea for fixed expenses but not fluctuating ones. Many businesses offer the option to take money off employees' paychecks and send it straight to their kids' schools for tuition. This way, they know it happens.

On the other hand, it may not be smart to automate your electric and water bill, because those are fluctuating expenses. You may have a leak or are being overcharged. You might want to cut down on consumption, but you won't know it because you aren't checking the bill.