The majority of people pay their bills first and then save or invest what’s left over at the end of the month. I used to do this as well–and my amount left over was usually close to zero. It’s one of the reasons I had very little money and lived paycheck to paycheck for so many years.
It wasn’t until I began paying myself first and automating my money that my personal finance life really began to change for the better. And it’s why I’m writing this post on how to automate your money and why I wrote my book Cash Uncomplicated. It changed my financial life and I know it can change yours too.
Why Automate Your Money?
The reason to automate your money is fairly simple. Life gets busy and most of us tend to forget about personal finances. So it’s important to put controls and systems in place. Automation is one of the most effective systems anyone can put in place. When you automate your money, the majority of the work is done upfront and the benefits last for as long as the automation is in effect.
Book Recommendation: The Automatic Millionaire
How to Automate
The next section is going to break down the steps to automate your money. Follow these steps and automation is fairly easy. It’s going to take a little work upfront but the results are well worth it. I can remember being shocked at the positive results after only a few months, and I believe the same can be true for you.
Step 1: Assess Your Values
Step one is to assess your values. The reason it’s important to do this is that we all need something to work for, and towards. Automation is not just about saving and investing. When you automate your money, you are also automating the fun things like travel, entertainment, and personal items you value.
That’s why it’s important to assess your values. When you are clear on your values, you can begin to allocate money toward them. Your money has a clear and intentional purpose as it’s going towards the important things in life.
For example, if you are someone who values travel, going out to nice restaurants, and musical productions, you will automate your money towards those things. If you value mountain biking, photography, and going to large sporting events, you will automate your money towards those things.
For more on assessing your values, see these posts:
- Value-Based Spending: How to Create a Budget Around What You Value
- How Value-Based Spending Can Change Your Life
- Are Your Financial Values Aligned With Your Life Values?
Step 2: Decide How Much to Allocate to Each Category
Now that you have your values clearly defined, decide how much to allocate to each category. First things first, you need to pay yourself first. That means in the form of long-term investments as well as savings to cover emergencies and general things that inevitably come up in life.
I recommend allocating at least 20 percent of your money to investments. So if you make $10,000 per month, you would invest $2,000. If you make $5,000 you would invest $1,000 per month. Some other examples:
- $8,000 per month: $1,600
- $6,000 per month: $1,200
- $4,000 per month: $800
- $2,000 per month: $400
It’s also important to allocate enough money to a savings account to cover emergencies and incidentals. After that comes the fun stuff, or the things you wrote down that you value. It’s the part where you automate money to:
- Vacations
- Weekend trips
- Events
- Hobbies
Decide how much to allocate to each category and automatically have money transferred from your source of income to that category. That way the money is there and you are being intentional about your dollars. It eliminates the guesswork and ambiguity. It also gives you permission to spend on some of life’s pleasures because the savings and investments are already accounted for.
Related: How Much of an Emergency Fund Should You Really Have?
Step 3: Bills-Insurance, House Payments, Etc.
Now that you are paying yourself first and allocating money towards things you value, it’s time to automate your bills. Things like insurance, house payments, utilities, etc. can all be automated. This doesn’t mean you are no longer tracking them or paying attention, but it’s easy to set up automations so you don’t have to manually pay bills.
Almost every company gives you the ability to set up automatic payments. When you’re ready to set it up, go to their website and enroll. Sometimes there can be a slight delay in getting the payments initiated so make sure not to miss any payments due to a lag in auto payments.
Once you have all your bills automated, you don’t have to worry about manually writing checks and missing payments. One word of caution: it can be easy to miss things when everything is automated. So make sure that each bill looks right and you aren’t overcharged for anything. A quick scan of the amount should do the trick.
The one bill I don’t automate is my monthly credit card (even though I have the ability to). Since the amount differs every month, I prefer to manually pay it and look through any charges that might be errors or fraudulent. Credit card companies do a good job of alerting customers about potentially fraudulent charges but I also like to double check for myself. This isn’t necessarily a recommendation, but it’s the way I do it.
Step 4: Miscellaneous
The last thing to automate is anything under the miscellaneous category. This could be random bills or automations you want to set up for a short amount of time. Basically anything that doesn’t fit into the above categories would go under the miscellaneous category.
Step 5: Review and Maintain
This is an easy step to skip, but avoid the temptation. Periodically review and maintain your automations. Some people like to schedule their maintenance monthly, quarterly, or even twice a year. Other people make changes when financial changes have occurred, such as a pay raise.
For example, if you in the public sector and get yearly pay step increases, you would coordinate your automations with your pay raises. For sake of even numbers, if you receive a $100 pay increase, you might increase your investment automation by $100. Or $80 or $90 and keep the rest for living expenses. Regardless of the amount, an adjustment needs to be made.
For those who are on commission or receive bonuses, those automations will look different and will probably need to be adjusted more often. For more on automating an inconsistent income, see the post I wrote about this very topic.
Conclusion
Automating your money is meant to make your life easier and improve your personal finances. It takes a little bit of work upfront, but once you’re done, all that’s left to do is maintain. Automation brings a level of intentionality to your personal finances and ensures that your money is going exactly where you want it to go.
It’s easy to lose track of the money we have coming in and out. “I don’t know where my money goes” is a familiar statement I’ve heard over the years. Automating your money completely prevents this from happening and guarantees your hard-earned money is going where you want it to go.
Do you automate your money?
