Many financial experts suggest that automating your finances is a good thing. It takes the worry out of money management and saves you time in tending to your financial chores.
The most evident disadvantage to automating your finances is losing track of where and how much money is going out of your primary account each month. Here are some quick tips that will protect your accounts and yourself from getting lost in the automated system.
1. Direct deposit can be split between accounts
Most companies no longer hand out checks. You receive your payment directly. When setting up direct deposit with your company, you are allowed to have a 100 percent of your after-tax income go to your checking account.
On most direct deposit forms, you can split up how much of your paycheck goes where. Meaning, you can send 10 percent of your income from that pay period to your savings or some other account you have set up at your bank. It will enable your money to shift itself so you don’t have to go back and do it later.
Whether you are salary or hourly may play a role in the decision to split how you receive money. Salaried employees make the same amount every pay period (more or less), so it is easy to develop consistency. However, it may be more difficult for hourly employees to stow away 10 percent each pay period, but you can always move your money around after you receive it.
2. Understand what accounts you can and can’t open
All banks have the capacity to allow you to open several different accounts at once. You may have a checking, a savings, a “nest egg” account, and IRA, etc. Having all these accounts at one bank can make automatically moving your money around simpler.
One thing to bear in mind is that some banks may have stipulations on what accounts you can open and what fees will be associated with it. For example, Bank of America® has two different checking account options. Once is the standard and will provide you with a checking and savings account. The maintenance fee is $12 a month unless you have a daily balance of $1,500 or make a deposit of $250 each statement cycle.
The other checking accounts are tied to an IRA, CD, Credit Card, etc. but there is a $25 maintenance fee unless you maintain $10,000 in combined balance between all your accounts. Speak to a bank teller openly about your financial situation to ensure you set up accounts that you can afford to have. Also, you can sift through online banks that may have better options for your automated financial needs.
3. Remember to set your notifications and reminders
The most advantageous thing about setting up automatic bill payments is that you won’t make a late payment or miss one all together. The drawback may be over drafting from your account or running out of money too soon.
It is beneficial to set up notifications from your bank and reminders for yourself. Your bank can notify you when your balance dips below a certain amount or alert you of your next payment for a bill. Check with your bank to see what notifications you can receive. Also, set a reminder for yourself through Google Calendar. This way you stay on top of how much of what is going out when.
Automatic banking is not about setting it and forgetting it. Although, it provides a big convenience for you, it can also turn into your worst nightmare if you aren’t knowledgeable about your money coming in and going out. You also don’t have to automate all your bill payments.
4. Automatically pay bills with your credit card
If you have a credit line big enough, you can put all your bills on your credit card and then pay the balance on your card. Take great caution when doing this, as it is easy to run up a high balance on your card. If this option is viable for you, not only could you rack up points on your card or receive a different perk, all of your bills will be consolidated in one place.
You, in turn, would have to make one payment a month to your credit card. Be sure you cover the interest as well!
5. Buffer, buffer, buffer
Various financial experts praise the “buffer” account. A buffer account enables you to not spend all your money on set expenses. If you can, you can create an account like this, using a high-interest savings account. A good amount to set aside is about a third of your money. This can all be synced to automatically pull from your checking or you can set up your direct deposit to this account. The buffer allows you to tap into the account in case some unexpected needs arise. A buffer account is different from an emergency fund.
With a little time, practice and a lot of comparing, you can become an automatic whiz at keep track of your various accounts. The goal of automatic banking is to decrease your financial stress. There are a number of other ways to stay on tasking, depending on your financial circumstances. Find out what’s right for you and let us know how you were able to achieve your goals.