Using Automation to Support Your Financial Goals

If you’ve ever signed up for a gym membership, streaming video service, or newspaper subscription, you’ve already experienced financial automation. Month after month, your account is automatically debited based on a decision you made once. What if you could use the same idea to save money, reduce debt, and even increase your credit score?

Financial automation uses technology to take regular financial actions on your behalf, freeing you from much of the daily grind related to money management. With automation, critical tasks like paying bills and saving for the future don't get lost in the shuffle. There’s no need to remember to pay your credit card bill, contribute to your savings account, or pay your car insurance premium. Once you set your course, it all happens automatically. 

So, what kinds of financial tasks can be automated? Examples include:

• Bill Payments - Automatic payments for recurring bills such as utilities, rent, insurance premiums, mortgages, credit cards, and other loans ensure you won’t miss a payment or incur late fees.

• Savings Transfers - Automatically transferring a set amount of money from your checking account to a savings account can help you build your savings effortlessly.

• Investment Contributions - Regular contributions to your investment accounts, such as a retirement fund or a brokerage account, can be automated to take advantage of dollar-cost averaging.

• Debt Repayment - Automating extra payments can help pay off loans faster. It may even reduce the amount of interest you’ll pay.

• Financial Reminders - With online calendars, you can schedule reminders to prompt you to review your monthly spending, check your credit reports, pay your taxes, check any cash-back reward balances, plus more.

• Notifications and Alerts - Many checking, savings, and revolving loan accounts offer the ability to set up notifications based on rules you choose. For example, you could specify that a text alert will be sent when your balance is below a certain threshold or when there’s an unusually large transaction. 

To a certain extent, financial automation is a “set and forget” strategy – but that’s not the whole picture. For example, setting aside a percentage of your income from each pay period for retirement is a great idea, but the exact percentage you may want to save will likely vary based on your salary. So the right choice today may not be best choice in five or ten years.

Further, automatic bill payment is convenient, but what if your income varies or you have a large, unexpected expense? An automatic payment that results in an overdrawn checking account isn’t anyone’s idea of effective money management. So having a solid understanding your cash flow is essential before setting up automatic payments and transfers.

This week, we’ll look at some common financial tasks that can be automated with a focus on bill payments, saving, and debt reduction. Other topics to consider exploring on your own include automated budgeting and investing tools – each of which can may prove useful, but the options are too vendor-specific to cover in a general way here.

Understanding the real benefits and limitations of financial automation places the power in your hands to decide what works best for your situation. Let’s get started!