A spring-clean of finances
Automate your bills with frequent review and needed updates
Automating financial tasks sounds like the perfect way to check mundane items like saving and paying bills off your to-do list with minimal effort. But there’s a potential downside to giving up manual control.
When you automate bills, you may be less likely to review them and notice errors, or to catch yourself overspending. When you automate savings, you might forget to make adjustments as your goals or income change.
As certified financial planner Catalina FrancoCicero puts it, “Somebody has to make a decision and it should be a human, not a machine.” That’s why she suggests using automation in conjunction with frequent reviews and updates.
While signing up for automated bill payments and savings transfers can be part of your financial spring-cleaning, consider these strategies from financial experts.
First, review cash flow
Ambus Hunter, an accredited financial counselor in the Baltimore area, encourages his clients to study their cash flow before setting up automatic payments. That means taking a close look at the money coming in and going out each month, insix cluding the specific dates of those deposits and withdrawals.
Start with monthly bills that remain the same
The easiest bills to automate are the ones that don’t change: car payments, condo fees, phone and cable bills, and insurance payments, for example. You can reap benefits, such as avoiding late fees without worrying about getting hit with an outsize transfer, says John Mason, CFP and president of Mason & Associates in Newport News, Va.
“I would draw the line at variable charges such as your water bill, electricity and credit cards, unless you’re disciplined enough to review those statements carefully even if they’re automated,” he says.
Ashli Smith, who lives in Atlanta and shares money tips through her Twitter handle @BadGirlFinances, automates bills that generate discounts for doing so. Many cellphone providers offer monthly discounts of $5 or more for using autopay, and insurance providers often offer similar discounts.
Enrolling in autopay for student loans can give you a 0.25 percentage point interest rate reduction.
Closely review all charges
Erin Lowry, author of the “Broke Millennial” book series, recommends checking to be sure payments were made.
She had been automating her rent payment for years when she noticed her payments stopped processing earlier this year.
“I never had an issue so had gotten a little lazy about checking to see if it went through,” she said. Then she realized she had a much larger bank balance than she expected. She discovered her rent had stopped processing — a problem she had to scramble to fix.
Automate savings, with manual tweaks
In addition to signing up to automate retirement contributions every paycheck, Mason suggests automatic savings for other goals. Every time he cuts costs to free up extra cash, he said, “I try to capture it immediately so it doesn’t get lost in the shuffle.”
He cautions that you’ll want to review the savings regularly and make sure you have enough money in your checking account to support the transfers, along with all of your other bills.
Adrienne Taylor-Wells, an accredited financial counselor and founder of Tailored WealthSaver in Houston, points to an additional strategy of autosaving: “I encourage clients to put the savings in a savings account in a separate bank so it’s harder to get that money and easier to save.”
Apps such as Digit and Qapital can help you automate those transfers, too.