Melanie Lockert from Dear Debt suggests automating your finances—but only if it’s right for you, Grownups.
When I first found out about automating my finances, it was an epiphany—the kick in the butt I needed to get over my excuses for why I couldn’t ever save or manage my money.
Automation to the rescue! I set up automatic transfers from my checking account to my savings. I signed up for auto-pay on my bills. Saving and budgeting became effortless. Automating my finances took the legwork out of getting my finances in order, and ensured I grew an emergency fund and saved for the future while still maintaining my regular expenses.
While automating my finances was a great introductory strategy to get me on track, recently I’ve been thinking it may not be the best long-term strategy. I’ve realized there are several downsides to automating my finances.
It’s Not So Hands-On
Automating your finances is great to make saving and paying bills effortless, but it does make tracking your spending and balancing your checkbook a second thought. If your credit card bill is set up on auto-pay each month, you may not be looking at all your expenses to see where your money is actually going. Through automation, you may not realize how much is actually still in your checking and/or savings at any given time.
While automation can ensure you’re saving and paying your bills, it can blind you from other areas of your finances, like spending. When you transfer money manually or pay your bills after scrutinizing your expenditures, you take an active role in your finances, which can lead to more awareness.
Timing is Everything
Automating your finances is great—but it only works if you have enough money in your account at any given time.
If you have an automatic payment or transfer hitting your checking account but don’t have sufficient funds, you’ll likely be hit with an overdraft fee. Automating your finances requires a balance and vigilance you may not realize. It’s best to automate after payday, so you know you’ll have funds; if you’re not careful, automating your finances can ultimately backfire.
Stagnancy is Prevalent
Over the past few years, I’ve been automating my finances and felt comfort in the fact that my saving was on autopilot.
However, my income has increased significantly over the past few years, and my automatic savings stayed the same. I realize I hadn’t adjusted my savings rate, compared to my income. In this way, automating your finances can keep you stagnant. To improve your financial picture, you need to adjust and adapt your savings plan as your financial picture changes.
There Can Be Errors and Identity Theft
When you have a set-it-and-forget-it strategy with your finances, you may be missing out on mistakes in your financial accounts. For example, you might be charged erroneously for a purchase or experience identity theft. If you automate your finances, it’s important to regularly log in to your accounts and look for errors that can cost you money and put your financial information at risk.
Should You Automate?
If you have trouble saving and managing your bills, automating your finances can be helpful. As I’ve learned, though, it’s important to still have check-ins with your finances. You don’t want to automate everything so much that you’re out of touch with what’s really going on behind the scenes.
Whether you automate your finances or not, it’s important to remain vigilant with all your accounts. Log in to your accounts regularly (weekly or biweekly) to check over purchases. Adjust your savings rate as your income goes up or down. Look at how much of your debt payments are going toward interest.
Automating your finances can keep you accountable and offer momentum, but it’s important to be aware of the downsides, too. Ultimately, it’s all about mastering your money and having the control you need to make sure you’re doing the best you can with what you have.
Do you automate your finances, Grownups? Why or why not?
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While Society of Grownups hopes the information is useful, it’s only intended to provide general education. It’s not legal, tax, or investment advice, and may not apply or be useful to your specific financial situation. If you need recommendations geared to your personal financial situation, schedule time with a financial planner.