Tuesday, January 26, 2016

Automate Your Finances

Keeping track of money and where it goes can take a significant amount of time.  You have to get your pay check into the bank, transfer funds to short-term, long-term, and targeted savings, funnel money to investments, pay bills, buy groceries, and the list goes on.  You should also know where all of it has gone so you can decide whether it is wise to repeat the same behavior in the future.

I find myself more interested in money as a philosophical concept than interested in bookkeeping (except for the fact that it's the only word I know with three double letters in a row).

If you take advantage of the technology available today, you can save a significant amount of time AND money.

Do you receive a pay check?  Ask if it can be direct deposited.  That saves you a trip to the bank and the opportunity to misplace the check.  Most companies and most banks can easily set up direct deposit for you.  If your bank can't do it, you should choose another bank.  If your company can't do it... well, choosing another place to work is a different topic.

Savings can be automated to a degree as well, again depending on your bank.  My credit union allows me to direct portions of my direct deposited pay check to a variety of accounts.  I have emergency savings, investment savings, home repair, and travel savings accounts.  When my pay check arrives at the bank, they put a small amount in each of those and the rest in my checking account.  I'm a salaried employee, so I know exactly how much will go each place each pay period.  If you're an hourly employee, you would have to arrange the order money got distributed in order to make sure you make it through the month.  Many investment accounts can autodraft your checking or savings accounts on a schedule.

Bills can be autodrafted from your bank account as well.  Any bill that is the same amount each month is an ideal candidate for this.  Insurance, trash service, rent/mortgage, phone service (more or less), etc. are known quantities.  You have to pay them.  Putting them on autodraft can enforce your budgeting, too, and help you discipline your spending, since you know they're coming out, and you know when.

Utilities?  My local utility offers a program they call Level Pay - they average the cost of your last 12 months of utility bills and charge you that each month.  They review it once a year.  If your usage is higher, they offer you the opportunity to pay any excess balance and keep the same monthly amount or have the amount raised.  If it's less, they lower the monthly rate or give you a check.  During one particularly tight time for me, I got off the Level Pay, took a refund check for current needs, then went back on in the summer when my usage would be higher.  The big advantage of Level Pay for me is that I have a known utility bill, so I can have it autodrafted as well, knowing what the amount will be.

My mortgage was once with my credit union.  I was able to make an arrangement with them to automatically pay half of my mortgage each pay period.  That seriously leveled out my payments each pay period.

The only bill I don't have on autodraft right now is our gas card payments since that amount varies quite a bit depending on what has been going on, and I like to keep closer track of that.

"But, Weet!  How do I know how much money I'll have at any given time if everyone in my life is taking money out of my account willy nilly?"  I'm glad you asked.  You have to budget, and you have to track.  But that is much easier and much less time consuming than opening bills, writing checks, and such all throughout the month.

I believe that every bank and credit union on the planet now has online banking.  You can go there to see when and what amount each has taken.  I use a spreadsheet that's set up like a check register.  On the lower rows, I have a list of autodraft sources, the amounts, and the approximate dates they draft.  Maybe I'm lucky, but I don't have any that straddle pay periods in the dates they draft.

It's a working spreadsheet, and not a record, though it could be done either way.  At the top of the balance column, I enter the current balance.  Right below, I enter outstanding checks and unique bills that are due.  Below that go the autodrafts scheduled.  And I enter my paycheck that's coming as a credit.  If the balance doesn't go below zero anywhere, I'm OK for that pay period.  If it does, I look at timing of the unique bills to see if they can wait, or I transfer a bit in from savings.  I probably spend about a half an hour each pay period doing this.

The main benefits of automating finances?
  • It saves lots of time.
  • It saves money - no late fees, no stamps, no envelopes, no checks
  • It automates discipline - it forces you to budget (which you should be doing anyway)
  • It saves money - automated savings/investing puts it where you mean for it to go and you can't forget to do it.
P.S. I recommend against using online banking or payment from your phone.  If you lose your phone or leave it unattended (and many people do), you're at risk.  Also, most phones aren't secure enough from external attack.  Unlike Nike, I'd say, "Just don't do it."

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