Automating financial tasks seems like the perfect way to get mundane things like checking in and paying bills off your to-do list with minimal effort. But there is a potential downside to forgoing manual control.
When you automate invoices, you’re less likely to review them and notice errors, or catch yourself spending too much. When you automate savings, you may forget to make adjustments as your goals or income change. As Certified Financial Planner Catalina Franco-Cicero says, “Someone 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 YOUR CASH FLOW
Ambus Hunter, a licensed financial advisor in the Baltimore area, encourages clients to study their cash flow before setting up automatic payments. This means taking a close look at the money coming in and going out each month, including the specific dates of those deposits and withdrawals.
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“I don’t like random automation. If you don’t pay attention to cash flow and make a few withdrawals here and there, it can trip you up,” he says.
START WITH INVOICES THAT STAY THE SAME EVERY MONTH
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 like avoiding late fees without worrying about being hit by an oversized 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, electric and credit card bill unless you were disciplined enough to carefully review these statements, even if they are automated,” says- he.
Ashli Smith, who lives in Atlanta and shares financial tips through her @BadGirlFinances Twitter account, automates invoices that generate discounts for it. Many cell phone providers offer monthly discounts of $5 or more for using autopay, and insurers often offer similar discounts. Signing up for autopay for student loans can give you a 0.25 percentage point discount on the interest rate.
Smith notes that you can often select the day of the withdrawal to ensure it falls before the due date, but after your paycheck has been deposited to avoid an overdraft on your account.
“Start small. Don’t put rent on autopay if you’re not comfortable with it, but try small bills like phone bills,” she suggests.
With credit cards, Smith notes, you can set up autopay for a certain amount to ensure you’re paying at least the minimum — or set a higher amount to pay off any accumulated debt. You can use minimum payment automation to make sure you’re never late, then make additional payments throughout the billing cycle to lower your credit usage and improve your credit score.
REVIEW ALL FEES CAREFULLY
Erin Lowry, author of the “Broke Millennial” book series, recommends checking to make sure payments have been made. She had been automating her rent payment for six years when she noticed her payments had stopped being processed earlier this year.
“I never had a problem, so I was a bit lazy to check if everything was okay,” she says. Then she realized that she had a much larger bank balance than she expected. She discovered that her rent had stopped processing – a problem she had to scramble to solve.
Automating an invoice doesn’t mean you have to stop looking for better options either. Franco-Cicero, who is also a wealth advisor at Tobias Financial Advisors in Plantation, Fla., says when it comes to car insurance, for example, it’s worth checking discounts and comparing options every time. your policy needs to be renewed.
AUTOMATE SAVINGS, WITH MANUAL ADJUSTMENTS
In addition to signing up to automate retirement contributions with every paycheck, Mason suggests automatic savings for other goals. Every time he cuts costs to free up extra cash, he says, “I try to capture it immediately so it doesn’t get lost in the mess.” He cautions that you’ll want to review savings regularly and make sure you have enough money in your checking account to support transfers, as well as all your other bills.
Adrienne Taylor-Wells, Certified Financial Advisor and Founder of Tailored WealthSaver, a consulting firm in Houston, discusses an additional automatic savings strategy: “I encourage clients to place their savings in a savings account at a separate bank , so it’s harder to get that money and easier to save.” Apps like Digit and Qapital can also help you automate these transfers.
However, manual adjustments are often necessary. Taylor-Wells started the year by saving for laser eye surgery in August, and she created a spending plan to reflect that. But when her optometrist offered a $600 discount for a 12-month supply of contacts, she opted to delay the operation until January 2023, giving her more time to save and also allowing for more discretionary spending.
“There are some things an app can’t automate,” she says.
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