Automating financial tasks can save time and hassle, but it’s important to consider potential pitfalls. Learn tips for automating bill payments and savings transfers, how to review your cash flow, and why closely reviewing all charges is critical.
by Maria Laus
Questions Answered in this Article
- What is the potential downside of automating bill payments and savings transfers?
- Relinquishing manual control could potentially have negative consequences, such as errors in payments and overspending slipping by.
- What is the first step recommended by financial counselor Ambus Hunter before setting up automatic payments?
- Hunter advises clients to review their cash flow thoroughly to avoid problems.
- Which bills should be prioritized for automation according to financial experts?
- Bills that remain the same each month, such as car payments, condo fees, phone and cable bills, and insurance payments, are recommended for automation.
- What should be done to ensure that payments have been made despite automating bills?
- It is advised to review charges closely to ensure payments have been made and continue to shop around for better options.
- How can savings transfers be automated while still allowing for manual adjustments?
- Setting up a separate savings account in a different bank and using apps like Digit and Qapital can help with automatic transfers, but it is crucial to adjust savings plans as needed and review them frequently.
The Pros and Cons of Automating Your Bill Payments and Savings Transfers
Automating financial tasks can seem ideal for efficiently handling mundane items like bill payments and savings. However, relinquishing manual control could potentially have negative consequences.
By automating bill payments, there is a chance that errors may be noticed, and overspending could easily slip by. Similarly, if savings are automated, adjustments may not be made as goals or income change over time. Certified financial planner Catalina Franco-Cicero states, “A decision needs to be made, and a human, not a machine, should make it.” As a result, Franco-Cicero recommends using automation in combination with frequent reviews and updates.
While signing up for automated bill payments and savings transfers may be a part of your financial spring cleaning, it is essential to consider these tips from financial experts.
Before Automating Your Bills, Review Your Cash Flow Thoroughly
Before setting up automatic payments, Ambus Hunter, an accredited financial counselor in Baltimore, advises clients to review their cash flow thoroughly. This involves examining the money coming in and going out each month and the specific dates of those transactions. Haphazard automation needs to consider your cash flow to avoid problems.
Start Small: Automating Bills That Remain the Same Each Month
It is recommended to start automating bills that remain the same each month, such as car payments, condo fees, phone and cable bills, and insurance payments. According to John Mason, a CFP and president of Mason & Associates in Newport News, Virginia, automating these bills can help you avoid late fees without worrying about being hit with an outsize transfer. However, it is best to prevent automated accounts with variable charges, such as water, electricity, and credit cards, unless you’re disciplined enough to review those statements, even if they’re automatic.
Atlanta resident and financial blogger Ashli Smith recommends automating bills that generate discounts for doing so, such as cell phone and insurance providers offering monthly discounts of $5 or more for autopay. Enrolling in autopay for student loans can also lead to a 0.25 percentage point interest rate reduction. Smith also suggests selecting the day for the withdrawal to ensure it falls before the due date but after your paycheck is deposited, preventing overdrawing your account.
To start small, Smith suggests automating little bills like phone bills rather than rent or larger expenses. For credit cards, Smith means setting up autopay for at least the minimum amount to guarantee on-time payment and making additional payments throughout the billing cycle to lower your credit usage and improve your credit score.
Review All Charges Closely: The Importance of Continuously Shopping for Better Options
Erin Lowry, the author of the “Broke Millennial” book series, advises reviewing charges closely to ensure payments have been made. Despite automating her rent payment for six years, Lowry noticed earlier this year that her expenses had stopped processing. She had become lazy about checking if the price went through and only realized the issue when she had a much larger bank balance than expected. She had to scramble to fix the problem.
It is important to remember that automating a bill does not mean you should stop shopping around for better options. Catalina Franco-Cicero, a certified financial planner and wealth advisor at Tobias Financial Advisors in Plantation, Florida, suggests that checking for discounts and comparing options each time your car insurance policy is up for renewal is worthwhile. This will ensure you are still getting the best deal and spending appropriately.
Automating Your Savings: Tips for Setting up Automated Transfers and Making Manual Adjustments
One way to make saving more accessible is to automate savings transfers for specific goals, such as a down payment on a house or a vacation fund. According to John Mason, a CFP, it’s best to capture extra cash immediately and move it into savings to prevent it from getting lost in the shuffle. However, monitoring your savings regularly is essential and ensuring you have enough money in your checking account to support the transfers and other bills.
Adrienne Taylor-Wells, the founder of the counseling firm Tailored WealthSaver, recommends automating savings by setting up a separate savings account in a different bank. She suggests using apps like Digit and Qapital to help with automatic transfers. Nonetheless, it’s crucial to adjust your savings plan as needed. For example, Taylor-Wells planned to save for laser eye surgery in August. Still, when her optometrist offered a $600 rebate for a 12-month supply of contacts, she postponed the surgery until January 2023. This gave her more time to save and more discretionary spending money.
Although automation can make saving more effortless, manual adjustments are sometimes necessary. There are certain things that an app cannot automate. Therefore, it’s essential to review and update your automated savings plans frequently.
Summary
- Automating bill payments and savings transfers can be efficient, but it can also have negative consequences if manual control is relinquished.
- Before setting up automatic payments, review your cash flow thoroughly to avoid problems.
- Bills that remain the same each month, such as car payments, condo fees, phone and cable bills, and insurance payments, are recommended for automation.
- Review all charges closely to ensure payments have been made, and continue to shop around for better options.
- Automating savings transfers for specific goals can make saving more accessible, but it’s crucial to adjust savings plans as needed and review them frequently.
- Use apps like Digit and Qapital to help with automatic transfers and set up a separate savings account in a different bank.
- It’s important to ensure that you have enough money in your checking account to support the transfers and other bills.
