People often think tending to their finances is hard work. But today, a myriad of online tools are here to help. “Automating your finances today is easier than it’s ever been,” says Peter Lazaroff, co-chief investment officer of investment advisor Plancorp. “Technology has made a huge impact, and I think it will only continue to get better.”
Who could benefit from digital assistance when it comes to getting finances in order? Pretty much anyone who could use a little extra time and energy. “Unless you are anti-technology, just about everyone should take advantage of automating their financial tasks,” says San Diego-based financial planner Taylor Schulte, the founder of financial planning firm Define Financial. “It changes behavior, mitigates mistakes and is proven to put you in a better financial position to succeed.”
The key to financial success is developing good money habits, such as regularly saving, always paying bills on time and maintaining a diversified investment portfolio. And using automation allows you to practice such good behaviors without a second thought. “It eliminates the stress and time of thinking about saving or investing,” says financial planner Marguerita Cheng, CEO of wealth management firm Blue Ocean Global Wealth, based in Gaithersburg, Maryland. “Before you know it, you are well on your way to building wealth.”
Still, setting all financial tasks on autopilot isn’t for everyone. Those just starting to manage their finances ought to put in the grunt work at first to help learn the ins and outs of their finances. “As you get more comfortable with things, you can begin to automate them,” Schulte says.
Also, people who struggle with overspending may do more harm than good by automating. If you set it and forget it, you run the risk of overdrafting your accounts, which can incur fees and, in some situations, bring down your credit score. Similarly, if your income is uneven – say, you’re a gig worker or you rely on commissions and bonuses – you must tread carefully. “It doesn’t preclude you from doing it, but it certainly does require extra care that the amounts of automated savings you’re putting away is conservative,” Lazaroff says.
No matter your financial situation, your best bet is starting off gradually. Even if you begin with simply developing small positive financial habits, it can make a big difference and encourage you to do more. “Saving just a few dollars here or there doesn’t seem like a big deal,” Lazaroff says. “But when you add it up over time, and you consider all those small habits – the compounding impact of them – suddenly you have a really noticeable end result.”
Here are four ways you can use automation to improve your finances for free:
Bill payments. Lazaroff and Schulte agree that paying bills is one financial chore everyone should put on autopilot, especially when it comes to repaying any credit card balances. “With interest rates so high on credit cards, the last thing you want to risk is missing a payment and getting hit with a penalty plus interest,” Schulte says. Late and missing credit card bill payments are also a big negative mark on your credit report, with payment history counting for 35 percent of your FICO score, the heaviest weighting of all considered criteria.
However, this financial task is also a common source for slip-ups. For example, if a bill you autopay changes for any reason – say, if a promotional price on your cable package lapses or if interest rates went up on a variable-rate loan – you’ll wind up underpaying. “This happened to me with my triple play bundle [for cable, phone and internet service],” Cheng admits. “Fortunately, I caught it after one month.”
You still need to check in periodically to ensure everything is on track and to make any necessary adjustments. Lazaroff and his wife, for example, review their finances together every six months, and he takes quick looks frequently, too.
Transfers to savings accounts. A major principle in any successful financial plan is paying yourself first. And contributing automatically to your retirement savings each month, building up your emergency fund and putting away cash for vacations and other financial goals is the easiest way to do it.
You’ll likely want to automate contributions to your company’s retirement plan. Your employer deducts money from your income before it’s added to your paycheck. That helps mitigate any sense of sacrifice you might feel from saving since you were never in a position to spend it. And you can mimic that trick for other savings goals by scheduling automatic transfers from your checking account to your savings or investment accounts to happen one day to one week after you expect to get paid, depending on how regularly your paychecks arrive.
Transfers to investment accounts. Putting aspects of your investing moves on cruise control can be particularly savvy. It forces you to ignore the ups and downs of the market, eliminates the chance you could emotionally react to volatility and allows you to easily stick with your long-term plan. “There’s probably no place where the impact of automation is greatest,” Lazaroff says. “When you automate your investments, you’re putting good behaviors in place, letting compound interest do its thing and just getting the heck out of the way.”
On top of automatically making contributions to your investment accounts, you can also set up automatic rebalancing, a feature offered by robo advisors and many brokerage firms for certain types of accounts. That way you can avoid risking, say, the stock portion of your portfolio being overfed by the longest-running bull market to date. Instead, your account will maintain your carefully constructed asset allocation and adjust on a monthly, semiannual or annual basis. Investing in a target-date fund can provide a similar experience, with the investment managers taking control of asset allocation without requiring you to lift a finger.
Financial protections. Even if you’re not comfortable setting up certain financial tasks to occur automatically, you can still use technology to help arm yourself against money mistakes. For example, many banks – including national institutions such as Wells Fargo and Chase – offer alert services via email or text message if your account balances drop below a specified amount, suspicious activity is detected or other problematic situations occur.
You can also use a calendar app to help you remember when it’s time for you to perform certain financial tasks yourself. “Even if it’s something you can’t necessarily automate, like, say, updating your living trust every five years, you can still automate pieces of it, like creating a calendar reminder prompting you to tackle that task when it’s due,” Schulte says.
