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Savings Automation

Automate or not?


There is a lot of information out there about different “hacks” in creating a successful financial future, and one I hear about often is automation. No doubt automation helps in some ways, but it can also be detrimental to your savings goals in my opinion.


Avoiding automation allows you to keep a pulse on your accounts, have an understanding of where your money is going, and have periodic (typically monthly) checks on your accounts.


Automation may “simplify” things, but doing some of it manually doesn’t have to be an onerous task. If you are on top of your accounts and monthly statements, it gets pretty easy to do a monthly review - I can typically do my own in under 5 minutes. But once you fall behind, that's when it becomes a bigger task to go through all your different accounts and make sure everything has been operating how it should be.


I am going to take you through some of the things I am looking at, and why I am pro-automation for some tasks, but not for others. Understanding your spending may be the first step to accomplishing your savings goals.


Paycheck Automation


Paycheck automation has been great for a lot of people who have savings vehicles that can be funded directly from their paycheck. Two of the most common accounts are retirement accounts (403(b) or 401(k) usually) and a Health Savings Account. What is your annual saving goal into that account? Divide that by 12 and make sure it goes directly to that account each month before you even see the money.


Of course, life happens throughout the year and sometimes you need to lower your contribution amount, but for the most part I am in support of this automation, as long as you know how the accounts are invested and you are periodically reviewing these investments as your balances grow.


Pro tip: in 2021, if you are fortunate enough to get a raise in your salary, consider giving your HSA and retirement account contribution a “raise” to avoid the potential of lifestyle creep as your income rises.


Fixed Monthly Expenses


This is another category that I am in favor of automating, as long as you know how much it is and what it is paying for. Some common items that come to mind:

  • Rent / Mortgage

  • Car Payment

  • Utilities (Internet, phone, electricity, gas, etc.)

  • Insurance

These are expenses that will happen every month, and are typically about the same amount each month.


The benefit of automating is that you do not miss the bill, and there are no late fees or charges. I am in support of this because you already know what you signed up for with these bills, you are locked into a lease or contract, and these are likely needed to continue living your current life.


Just a friendly reminder that this blog is about automation - I am not suggesting that you ignore how much you are paying for these expenses and if that needs to be reviewed.


Variable Monthly Expenses


I’ll start off by saying I spend all my money on credit cards. This is a personal choice, but I will always know I can pay the full bill every month before I spend on the credit card. I find that the benefits of reward points and a “summary” of my spending each month is great for me when it comes to my spending, and I recommend this to others (as long as you avoid credit card debt).


This is the final category and I am against automating these expenses. These are the expenses that typically fall into the “budget”, also known as your discretionary expenses that include items like eating out, groceries, entertainment, Netflix, etc.


For some, this spending is done on a debit card and gets directly taken from your bank account. For others, this is done with a credit card - if you do it with a credit card, you can have your monthly bill automatically taken from your bank account. This is the part I think is detrimental.


It is so easy to swipe a credit card, and then never think about it again because everything else is taken care of for you from there. You never FEEL that expense! You should run through and audit the credit card bill(s) each month before manually making the payment, which can bring the following benefits:

  1. This helps you confirm this was all your spending (no fraud), and no charges need to be disputed.

  2. It reminds you where you are spending your money by having to “relive” the expenses.

  3. It can help to remind you to make a note of expenses you have to find again (e.g. tax deductible expenses that you will need to report at tax time).

The risk of keeping this as a manual process is the possibility of missing the payment, resulting in fees and interest. But getting on a monthly schedule and making the effort to do this each month outweigh the risks of missing the payment in my opinion.


Standard Process


I thought it could be helpful to run through my own personal process of reviewing my monthly bills. This has worked for me, and made me feel in control of my finances. It typically takes me about 5 minutes, no need for spreadsheets, software, etc.


Step 1: Grab a sticky note and a pen.

Step 2: Add up my typical fixed expenses that get pulled from my checking account every month.

Step 3: Pull my two credit card statements. Look through the transactions to make sure nothing looks weird, and confirm any larger expenses were actually from me. If there are any expenses I will need for tax time, I have a spreadsheet that I write down the expense so I can easily find it come early next year. Then I write down the total amounts from the two cards, and schedule my payments.

Step 4: Add up all expenses on my sticky note. As you continue doing this, you will get a feel for what a “good” month is and what a “bad” month is, and then you can start to understand what is causing a “good” or “bad” month.

Step 5: Transfer remaining balance of your pay to your different savings accounts! This feels good and helps you see how much you saved after expenses, which you should be proud of.


Final Thoughts


I operate on the belief that you should focus on your savings goals prior to tracking every dollar you are spending. If you are hitting those savings goals (in paycheck automation and step 5 above), you do not have to make budgeting a big exercise; you should just be reviewing the transactions every month for the reasons I mentioned above. If you are not hitting your savings goals, then automation may not be your issue and reviewing your income and expenses more closely may be necessary.


There are many savings vehicles out there with different roles and rules - if you need helping coming up with a savings plan, reach out and see how I can help.