Takeaways
- Automating your finances can help you consistently achieve your financial goals.
- Automating your financial ecosystem alleviates decision fatigue and reduces errors.
- Paycheck deposits, transfers, savings, and bill payments can all be automated.
- Monitoring the flow of your ecosystem should be done monthly, quarterly, or annually.
- Combining automation with a budgeting strategy that fits your needs increases adherence.
There is a lot of talk about how artificial intelligence will change the future. The reality is that most people don’t even use half of the technological capabilities available. If you want to improve your finances, streamline your financial ecosystem, and enjoy the rewards of financial planning, you should consider automating your finances.
What is Automating Your Finances?
Automating your financial ecosystems is connecting your disparate financial accounts into one nexus of automated decisions. Automating your ecosystem involves linking your accounts together to facilitate the movement of money in and out of accounts without lifting a finger.
Automation could be as simple as setting up an automatic deposit of 50% of your paycheck into your checking account and 50% into your savings account. Automation usually starts at your source of income and splices funds into their proper buckets. Once you have funds in the correct account, your decision tree trickles to effortlessly pay bills, make investments, build your emergency fund, and pad your slush fund.
Where you want your funds to flow in your financial system should align with your short-term and long-term financial goals. You can calibrate how much money is moving into each account to meet your goals and adjust the tap once you have achieved your goal. Let’s take an in-depth look at exactly how automation works.
7 Steps to Automate Your Finances
There are many ways to automate your finances. Part of the process involves taking a step back and thinking about your finances holistically. Here are the seven steps to start getting your finances automated today:
1. Create Financial Goals
Analyze your goals before you get overwhelmed with the number of accounts to link and synchronize. Your short-term and long-term financial goals should dictate how you set up your automation. Your goals will provide a clear direction and reduce the need to revisit what money moves to make next.
For example, if your short-term goal is to pay off credit card debt, you could set up an automatic payment from your checking account to your credit card bill. Alternatively, if your goal is to start investing in stocks, you could automate a deposit of 25% of your paycheck into your online stock brokerage account.
Once you have mapped out your financial goals, the next step is to grasp how many accounts you want to link. Some financial advisors advocate automating one part of your finances at a time. Once you get comfortable with your structure, you can adjust the flow.
2. List Accounts
One of the first orders of business in automating your finances is to get an idea of how you process payments, transfers, and savings now. The next step is to analyze your financial accounts and list them.
Depending on where you are on your financial journey, you might only have one or two accounts set up. As life milestones accumulate, you are likely to have more accounts. Here is a list of typical accounts you might incorporate into your financial ecosystem:
- Checking Account
- Savings Account
- Emergency Fund
- Slush Fund
- Credit Card
- Student Loan
- Roth IRA
- Traditional IRA
- Employee-Sponsored 401(k)
- Online Stock Brokerage Account
Once you have all your accounts listed, you can start designing how you want money to move around.
3. Consolidate Accounts
It is vital to centrally house your financial information once you have accounted for all your savings, debt, investment, and retirement accounts. A central location for your financial information lets you easily view your accounts. You can do this in an app, Excel, or notebook.
From this view, you can spot redundancies and reduce the number of institutions holding your money. For example, if you have three high-yield savings accounts with different annual percentage yields, consider consolidating your funds into the account with the highest APY. This will alleviate the headache of having to manage multiple logins.
Decreasing financial clutter in your life can harmonize your money goals.
4. Sync System
The next step is to connect your paychecks to your checking account. Your checking account should be the central hub of your financial system. From here, you can delegate where you want your money to flow. Gradually linking your accounts to your infrastructure will allow you to control the process. Let’s look at exactly how to do this:
Choose the Best Checking Account
The central node of your automated finances will be your checking account. Picking the best checking account to start your financial ecosystem will set you up for long-term success.
There are several key features to look for when selecting the perfect checking account:
- Online Access
- Easy-to-Use Phone App
- Unlimited Transfers
- Low Balances
Read More -> Best Online Checking Accounts
Link Your Emergency Fund
Financial experts recommend having an emergency fund. An emergency fund protects you from financial calamities – accidents, injuries, layoffs, or car problems. You can use a high-yield savings account to earn interest income while you save.
Some personal finance experts recommend saving $1,000 in your emergency fund. Due to inflation, others recommend saving at least $3,000 in your emergency fund. Saving $50 or $100 a month will allow you to amass a balance quickly.
Read More -> Best High-Yield Online Savings Account
Link Your Credit Card
If you are like most Americans, you probably have a credit card. One of your goals could be to try and pay off your credit card debt. You can do this by linking your credit card to your online checking account to enable a monthly automatic payment toward your credit card’s balance. You can automate this.
Smart Tip:
Schedule your credit card payment for 1-2 days after your paycheck hits your checking account so you don’t accidentally take out funds too soon.
Link Your Student Loans
More than half of students will leave college or university with student loans [1]. Whether you have federal or private student loans, paying off your loan can free up funds to start investing or meet other financial goals. You can pay off your student loans fast by automating your monthly payments
Smart Tip:
Student loans are considered long-term debt. Put a dent in your debt by switching to treating it like short-term debt and paying part of your principal balance each month.
Link Your Slush Fund
The next stage is to link your checking account to your slush fund. A slush fund is a savings account, which holds several months’ worth of living expenses. It is important to note that your slush fund is an addition to your emergency fund. Financial advisors generally recommend not mixing these funds. A slush fund is a hedge against your human nature to dip into your emergency fund, mitigate unforeseen unemployment, or take some time off.
Look for online savings accounts with no transfer fees and low minimum balance requirements. Because your slush fund is a cash savings account with 3-6 months’ worth of living expenses, you want to ensure your cash earns interest in a high-yield savings account.
You don’t have to fund your slush fund overnight. You can gradually add to your account with automatic deposits from your checking account. After your slush fund savings goals are achieved, you can start investing your extra cash.
Link Your Investment Accounts
Learning how to invest is one of the greatest wealth accelerants. Automating your investing strategy (especially if you are using dollar-cost averaging) is a smart money move.
There are several priorities to consider, such as what accounts to set up first. For regular investing activities, you can set up an online stock brokerage account to trade stocks, bonds, real estate, and other investments.
Smart Tip:
Online brokerage accounts can also offer retirement savings accounts, such as Roth IRA and Traditional IRA accounts.
Link Your Money to Fun Events
Wherever you are on your financial journey, rewarding yourself is a proven strategy to increase success over time. Make sure to allocate fun money for travel, entertainment, and other fun activities. Find joy and happiness every month, which will help you continue to meet your financial goals.
5. Decide Percent Allocation
With your financial ecosystem fully connected, it is time to determine how much money you want to allocate to each financial goal. You might already have a budgeting system (like the 50/30/20 budget) that assigns how much should go into each bucket. For example, determine whether you want to automatically deposit 10% or 20% of your paycheck into your online stock brokerage account.
During this process, ensure you have enough money to pay your bills and keep up with basic household payments. In the beginning, it might be wise to only automate one aspect of your finances per month.
For example, if your goal is to pay off your credit card debt, you could set up an automatic payment of $500 to your credit card account. If this is comfortable for your budget, the next month you can increase your payment.
6. Let Your System Flow
Once all your accounts are linked and flowing how you want, you can modulate how much of your discretionary income you want to flow to each financial goal. Over time your goals might change, so you can dial up or back how much money flows to each account.
For example, if you are thinking about purchasing your first home, you might need to concentrate on saving for a down payment. This could mean gradually increasing the percentage of your income deposited into your savings account.
Let the automated system work for you. The reason you automate your finances is to remove decision fatigue, meet goals, and streamline your finances. Part of that transition is trusting in the process and only refining the system at regularly scheduled times.
7. Schedule Regular Check-ins
Monitoring all your accounts should be done regularly. Part of the advantage of automating your finances is that you don’t need to review all your information each month. Your aim should be to have your system run unencumbered and for you to focus on doing other things you love.
Read More -> 5 Reasons to Talk with a Financial Advisor
At first, you might want to schedule monthly reviews. However, the goal should be to gradually check-in less. After you get comfortable with your setup, you can make these monitoring sessions quarterly or annually. Let technology do the heavy lifting.
Smart Summary
The steps to automate your finances involve getting your financial house in order. You can remove decision fatigue by creating an inventory of your accounts, assessing your goals, and shepherding funds to meet those goals. Of course, you will need to monitor your checking, savings, debt, and investments. Automating your finances is a smart money move.
(1) Forbes. 2024 Student Loan Debt Statistics: Average Student Loan Debt. Last Accessed March 26, 2024.
