Should You Automate Your Finances?

by Miranda Marquit · 15 comments

Automated finances

Many of my bills are automated. Not only is my mortgage automatically withdrawn from my account, but I even have my weekly produce delivery automatically charged to a rewards card — a card that’s automatically paid off with funds from my checking account.

From automatic investing to regularly scheduled transfers to a savings account, my finances move fairly smoothly most of the time. However, automated finances aren’t for everyone. In some cases, they can cause more harm than help.

Advantages of Automated Finances

For the most part, having your finances automated is about convenience. When most of your bills are paid automatically, you don’t always have to think about due dates and using a check or cash. With everything moving through your accounts, you can go on vacation without worrying that you’ll miss a payment and be charged penalties. Additionally, it’s harder for the bills to slip through the cracks when you have them automated.

Finally, automating your finances can help you save more. If you automatically invest and save, you can build your wealth more quickly and more automatically — because you don’t have to stop and think about it.

Can Your Cash Flow Handle Automated Finances?

Even though automating your finances can be convenient, it’s still important to pay attention to your cash flow. In fact, it’s important to consider your cash flow before you start automating your finances. This is because when you have everything automated, it works out like clockwork — unless something goes wrong. Then, you’re going to have problems.

I saw this firsthand a few months ago. My husband and I both have irregular income, so we have to pay attention to our cash flow. For the most part, we’re covered; but a clerical error in the processing of one of my husband’s checks resulted in a smaller paycheck than we had expected. All of the bills were paid on time, but we didn’t check to make sure that the deposit came through as expected. As a result, we ended up overdrawing the account and being hit with fees.

When the mistake was discovered, my husband’s employer covered the fees — we were lucky. We put too much trust into the automation and didn’t follow up like we should have. It’s easy to become complacent with automated finances. If something goes even a little wrong, it’s possible that you could end up accumulating fees due to overdrawn accounts.

Conclusion

Automating your finances doesn’t give you a pass on paying attention to your accounts. Organizing your finances can be helpful, and automating can make things easier for you — but only if you’re already responsible with your finances. Carefully think about your finances, and whether or not you could benefit from automation. Also, recognize the pitfalls of automating your finances. Take the time to double-check your accounts occasionally, and make sure you have the cash flow to support automation.

Have you automated your finances? Why or why not? 

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{ 15 comments… read them below or add one }

Grayson @ Debt Roundup January 22, 2013 at 7:30 am

I don’t have all of my bills automated, but most of them are. I still like the control of paying my bills and it gives me the opportunity to double check what I am being charged. I think that is really important. If you automate everything, you are less likely to see if you are being charged correctly.

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M Meagher January 22, 2013 at 8:26 am

I may be a dinosaur but I like it mostly the old fashioned way where I get a statement, cue the bills and pay them on time. I noticed that the bank still charged you the fees, and that’s my point, they are almost hoping for a situation like yours and then “slam” you with fees. I just hate that! so I’ll continue on my old fashioned ways and try to stay ahead of the bank mine fields of fees.

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ROCKY January 24, 2013 at 8:52 am

Agreed. I still pay with checks through the mail, as I get to look at my statement, and see if it’s accurate.

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John January 22, 2013 at 3:50 pm

We have direct deposit going into three checking accounts. Two accounts are for automated payments (car payment, mortgage, home equity). The third is more discretionary which include groceries, etc. where I can manage any hiccups that happen.

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Jay January 24, 2013 at 9:52 am

I REALLY like this idea, and I think I’ll probably be stealing it for my own finances in the near future. I have a hard time visualizing how much of my available money is actually available, and so I end up leaving it all in my checking account. I think this would help me understand how much money I actually have that isn’t already spoken for.

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MoneyStreetSmart January 23, 2013 at 9:03 am

YES! I think automating your finances is a great idea- for your month-month payments that will repeat consistently. It is a great idea to see your cash flow while payments are being automated and receive your income- kind of forces you into a budget if you know what I mean. I would still advise keeping a close eye on all payments every month to ensure there are no discrepancies.

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Holly January 24, 2013 at 8:09 am

Yes, I automate. I never have late payments and never have to think about it. But you do need to make sure you have extra cash in the account as a cushion. With automation I can pay bills on the last possible day without paying a penalty or worrying about if the check arrived in the mail.

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Brad January 24, 2013 at 10:54 am

I’m a huge fan of automating bill payments and have only 1 suggestion to add…
If your bank offers bill paying services try to use that instead of signing up with the companies auto-drafting service. If you do go with the company service and decide to discontinue the service it could take a while to kick in. However, if you go through your own bank it is a simple matter of deleting that payment plan and kick in instantly.

In my case it was with Comcast Cable who told me it could take 2-3 billing cycles before they stopped drafting from my account and there was no notice to me when it took effect.

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Jen January 24, 2013 at 1:21 pm

The bulk of our bills are automated but one thing I don’t like about using the built-in services from our various places we pay, is that the date that you pay is often set by the company, usually the day the bill is due. For credit cards, which calculate interest on an average daily balance, it would make more sense to pay those earlier in the cycle to reduce the daily balance and therefore, the interest charged. I’m switching those all to the bill paying service from our bank (which is free) so I can control those dates better.

For our mortgage, I transfer 1/4th of our payment every Saturday morning from our checking to the savings account that is attached to our checking account. Three days before our mortgage is paid automatically, I have the entire payment transferred back to checking for that payment. This way, I’ve earmarked that money for our most important bill, our mortgage, and set is aside where it is separate yet accessible for when the payment is due. We don’t use that particular savings account for anything but this reason, so it’s easy to check and see what’s in it and make sure the amounts are correct throughout the month.

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Jen January 24, 2013 at 1:23 pm

I should mention that those transfers for our mortgage payment are all automatic. I can set up six months worth of transfers in advance with our bank and they are marked on our calendar. When I get close to running out of pre-planned transfers, I log in and set up six months more. It takes maybe 10 minutes a year to set up those transfers. I love it!

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fred johnson January 24, 2013 at 6:34 pm

Once I made a voluntary IRS estimated tax payment from the wrong money market account and the check bounced. IRS charged me a “bounced check fee” of $800. I rarely bounce checks, but that is the biggest bounced check fee I have ever seen in my life. And remember, this was a voluntary estimated tax payment.

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Cynthia January 25, 2013 at 4:06 am

You also need to take into consideration that overdrawing your account and bounced checks effect your credit score. Although your employer covered the bounced check fees, you may end up paying more on your next loan (ie- interest rate) because of this mix up.

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John January 26, 2013 at 2:52 pm

I partially automate my finances. There are some bills I want to keep a close eye on, and others that are fairly consistent. When it comes to budgeting, I like to do everything by hand.

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Robert January 26, 2013 at 4:59 pm

Great article with some good examples. If you want a more in-depth look at this topic, I recommend The Automatic Millionaire by David Bach. For many years, I electronically bought $50 worth of Bob Evans Farms stock every first of the month. The neat thing about reviewing the quarterly statements was that when the stock price was high, I bought fewer shares, and when it was low, I bought more shares. My average price per share was much lower than the closing price per share when I stopped the auto debits. Now I just watch those dividends pile up.

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Betty January 26, 2013 at 5:03 pm

I am semi-automated. I have a few things paid automatically, and the rest I use my online bill-paying function with my bank to pay.

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