Have you ever heard the phrase “automate your finances” but never truly understood what that meant? Are you supposed to use a robot? Is there a self-spending credit card created by Elon Musk that you’re unaware of?

Believe it or not, it’s neither (yet) !

Automating your finances is actually pretty simple, but will require some up front work on your part. The most important step to get started is to know what your financial goals are. Without establishing your goals, it’s very difficult to automate the process to reach them!

Your retirement plan is already automated

If you’ve ever contributed to a company retirement plan such as a 401(k) then you’re probably familiar with automating your finances. You select a percentage to contribute to your retirement account each paycheck and your employer AUTOMATICALLY withdraws, contributes, and invests those funds on your behalf. After selecting your contribution percentage and asset allocation, there’s not much for you to think about other than checking it every now and then to make sure it’s on track for your goals.

Wouldn’t it be nice if you could do this for all of your goals? You can!

Once you know your goals, it’s pretty easy to set up most of it on autopilot.

Let’s walk through a few common scenarios:

One warning, you need to have a good handle on your cash flow to effectively implement the automation process. Let’s go through a few common scenarios for millennials.

Goal: Increase your emergency fund by $13,000 this year.

Automate: Contact your HR/payroll department and have them split your paycheck into two bank accounts. They will automatically direct $500/paycheck (biweekly) into your emergency savings bank account and the remainder of your check will deposit into your normal checking account. You can usually split your check into multiple accounts if you have multiple savings goals!

Goal: Max out your Roth IRA contributions this year. (Contribution limit $6,000 in 2021)

Automate: Contact your custodian (where your Roth IRA is held such as Vanguard, TD Ameritrade, Fidelity, etc.) and set up a monthly recurring contribution of $500/month into the account. Most custodians will also allow you to set up a recurring purchase of a mutual fund which allows you to contribute and invest the funds automatically without any ongoing effort on your part.

Goal: Stop stressing out about day to day finances.

Automate: Most of your bills will allow you to set up recurring payments so you don’t have to worry about missed payments and stress about the day to day management of your finances. Set up automatic payments for as many bills as possible (many will even offer a discount for doing so).

Benefits of automating your finances

Parkinson's Law: Expenses rise to meet income.

Automating prevents you from spending the funds that were allocated for savings. Pay yourself first! It’s human nature, Parkinson’s Law, to spend what we have available, so if you wait until the end of the month to save what’s left over, there won’t be anything left over! Once you start automating it, you will get used to it never hitting your bank account and you won’t miss it.

Live on less

You will get used to living off less which has many benefits, such as needing a smaller emergency fund to cover your necessary expenses. You are also less likely to fall victim to lifestyle creep as you’re proactively putting your income to use before it hits your checking account and with any increase in pay you’ll direct it to a goal.

Low Maintenance

Once you have the system in place, it will require little to no maintenance. You’ll feel less stressed than thinking about your finances every day and won’t need to follow a strict budget. 

Start automating your finances now

Ultimately, you will reach your goals quicker by being intentional and proactive with your income at the beginning of the month, rather than reactive! 

Automating your finances compliments well with reverse budgeting. Putting all of your goals and bills on autopilot at the beginning of the month will leave you with the amount of income leftover to do as you wish with! No need to budget $5 for your latte, so just don’t spend more than what is left over each month!

What are you waiting for? Go put your finances on autopilot!

Disclaimer: This blog shouldn’t be considered advice, or recommendations. If you have questions pertaining to your individual situation you should consult your financial advisor.