How to Automate Your Finances for Better Money Management

money tree drawing on black board beside a woman

Better money management is one of the major challenges for most people.

Almost two-thirds of Americans would struggle to pay for a $1000 emergency. Without a safety net to handle car repairs or other emergency situations, many people are living on a financial edge.

That's the type of situation that keeps a lot of people up at night.

If you're looking to improve your financial management skills, automating your finances is a great place to start.

Read on to learn more about automating finances and how you can start a path to better money management.

Why Automating Finances is a Good Idea

Automating finances involves automating most of your financial transactions. You set up direct deposit into your checking account.

You automate when expenses are withdrawn from your account. You can also automate money transfers like putting 5% of your earnings into a 401K, another 5% into a rainy day fund, and then the rest to cover expenses.

If you're self-employed, automating expenses can be a lifesaver. One of the most difficult things to do is to set enough money aside for taxes.

One thing you can do is set up automation to put 15% of your expenses aside for self-employment tax. You can also set up another account to put 5% into a profit or savings account.

A lot of people are hesitant to automate finances because they like to have control over their money management.

The great thing about automating finances is that it takes the emotion out of your finances.

Money is more about emotions than anything else. We attach a lot of our experiences with money and apply that to our current situation.

Fear, anxiety, and resentment are common emotions when dealing with money.

By automating your finances and having a better money management system, you take the emotions out of your financial situation.

That leads to better decision making around your money.

How much time do you spend on your finances each week? It's common to find people spend about an hour a week on finances.

You can trim that down to an hour a month by automating your finances.

Choose a System that Works for You

There are a few financial books that advocate putting your money into different accounts.

They operate off of a similar concept that you should have 4-5 accounts and your money gets divided up between the accounts.

For example, in Profit First, Mike Michalowicz has a system for entrepreneurs to create a profitable business and ensure there's enough cash flow.

Books by T. Harv Eker and Ramit Sethi also tout similar systems.

T. Harv Eker says to put 55% into an account or jar for everyday expenses like groceries, rent, and utilities.

Then set aside 10% for big purchases like TVs or a vacation. Put another 10% into an account for play like nice dinners and leisure.

You'll also have accounts for education (10%), creating passive income (10%), and giving (5%).

You set up a system, so a certain percentage of your income goes into these different accounts.

You can start off with an account for profit, checking for regular expenses, 401K, and play. You can put 5% in profit, 401K, and play. Then you can expand into other accounts.

In case you don't have enough money coming in, start small. Just 1% to start with can make a huge difference.

Set Up Automation Tools

Once you decide on your system, you can then set up your tools to automate your transactions.

The first step is to set up your accounts with your bank. You'll want to make sure that you work with a bank that doesn't charge fees for your accounts.

Most banks, especially credit unions and community banks, offer some kind of free checking account. That will enable you to set up as many accounts as you need and not incur costs.

You should also make sure that your bank offers online banking. This will enable you to set up automatic transfers to your different accounts.

The next step is to have a direct deposit paycheck into your main checking account.

You've probably heard the phrase "Pay Yourself First." This means that you should set up your first transactions to do just that. Put aside money for your most important accounts, whether it's for investments or emergency savings.

Then set up your payments for your bills. You should already have a budget established to determine what your expenses are and have automatic payments set up with each institution.

If you find that you can't budget 1% for your pay yourself first accounts, then take a good look at your monthly expenses and see what can be eliminated.

You can also use budgeting software for personal finance to keep track of everything, too.

There are many tools and apps that you can use to track your expenses. They also enable you to set up multiple accounts, so you can see how much you should have in each.

You'll want to watch out for paying off your debt and automating your investment strategy. There are robo-advisors like Wealthfront and Wealthsimple that you can set up your investment portfolio.

You'll be able to figure out how much you should save now for retirement, what your net worth will be, and if you can maintain your current lifestyle when you retire.

You can also set yourself up for other financial goals like owning a home or saving up for college for your kids.

At the end of the month, you can reconcile your numbers with actual numbers in the bank. That will help you take care of any discrepancies.

Better Money Management

Better money management starts when you can make decisions without a lot of emotion.
Decisions that come from fear or anger around money will only make your financial situation worse.

Automating your finances helps you take the emotions out of your financial decisions. It also helps you save time because your finances become predictable.

If you want to know more about managing your money, check out our blog today.


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