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With the proliferation of mobile apps and smartphones, automating your finances is easier than ever. This can include automating saving or paying off debt, which is very useful from a behavioral perspective. If it’s running automatically in the background, you’re more likely to stick with something – basically out of sight and out of mind.
The biggest hurdle to automating your finances is starting the process, so don’t hesitate to start the process to get on track with your financial goals in the new year.
Here are seven ways to automate your finances and fast track your savings goals.
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1. Set up automatic savings.
Since it is important to have long-term savings for emergencies and retirement, the first step should be to determine how much you want to save in each “bucket” each month. You may want to put $100 into your savings and then contribute more to retirement.
As a general guideline, it’s a good idea to have at least three months of spending needs in cash savings, or six months if you want to be more conservative. Once you translate this into a dollar amount, many banking apps allow you to set a savings goal, set up automatic transfers to reach it, and track progress. The apps help you stay on track or make adjustments as needed if you fall behind.
2. Automate regular payments.
You may have already taken this step in some aspect of your life. Automating all your payments is critical to a stress-free financial game plan. This includes your mortgage or rent payment, credit card payments in full, car payments and cell phone, utility or other regular bills.
If available at your job, you should also use direct deposit with a paycheck.
Doing all this will ensure that you don’t have to worry about any late fees or deadlines. Additionally, this step should include reviewing all of your automatic payments and removing those you no longer need, such as streaming services you no longer use.
3. Pay your future self.
If your employer offers a company-sponsored retirement plan such as a 401(k), you must contribute a percentage of your salary to your pension, especially if your employer offers matching contributions. If you match your first 3% of contributions, you’ll get 6% of your 401(k) contributions as you defer 3% of your salary. It’s 100% profit just by putting your own money into savings.
If you don’t have an employer savings plan, you can open an IRA (Individual Retirement Account) with a brokerage firm and contribute to that instead. If you earn up to that amount, you can contribute $6,500 in 2023 (or $7,500 if you’re over 50).
Just like a 401(k), you can set up automatic transfers from your bank to an IRA account every month. Instead of money coming out of your paycheck, it simply comes out of your bank account.
4. Consider annual 401(k) increases.
Your 401(k) plan may offer an annual increase feature, which allows you to set a pace to delay automatic increases each year. That means if you’re currently saving 3% of your paycheck into your 401(k), you can schedule to increase that amount by 1% at the end of each calendar year. % In the third year, your deferral rate will be 5% and so on, usually up to a limit.
If you eventually max out salary deferrals ($22,500 for 2023 or $30,000 if you’re over 50), you’re on your way to a healthy retirement.
The IRS adjusts 401(k) contribution limits in future years due to inflation, so at the end of December of each calendar year, set yourself a reminder in the application you choose to review the following year’s limits and adjust your deferrals to use the higher limits. This allows you to spread your contributions evenly throughout the calendar year and avoid missing out on employer matching contributions.
5. Make sure your cash is getting a good amount.
One silver lining to interest rates is that high savings account rates are rising. It’s very easy to get an account with an APY of 3% or more. This is even more attractive than a year ago.
Sure, a 3% rate isn’t likely to keep pace with mainstream inflation right now, but it’s still more attractive than parking your money in a standard checking account that earns 0%.
Most big brick-and-mortar banks still won’t pay you anything for cash in your checking account, so it’s worth the time to research high-yield online savings accounts. Available online through many banks and credit card companies, they are fully FDIC insured. (Opens in a new tab) And they typically charge zero or nominal fees.
These accounts are typically opened online or through mobile apps and can be easily managed online. If you already have a Capital One or American Express credit card, you can take advantage of their high-yield savings accounts.
If you already have their mobile app on your phone, it’s easy to set up automatic monthly transfers to top product savings. Once the move is set up, you’ll get a much better return on your cash by building your savings fund.
Be sure to keep an eye on the rates to make sure you’re getting the maximum rate, as they change frequently.
Money management platforms like MaxMyInterest (Opens in a new tab)StoneCastle (Opens in a new tab) and Flourish (Opens in a new tab) It can help to automate this process.
Websites like Bankrate (Opens in a new tab) If you want to choose it yourself, it will help you to compare the prices of different banks.
If you’ve maxed out your retirement contributions up to the account limit and your emergency savings are at a sufficient level (you don’t want to have a lot of net cash because you’ll be earning less in life), you can always add any extra savings to taxable investments.
Investing money in taxable investments can help your money improve over the long term, rather than cash, with a higher rate of return if you invest carefully, and are not subject to contribution limits. You can easily set up automatic transfers to investment accounts as well as order to buy selected investments (ie mutual funds) with incoming cash flows. For example, you could buy $200 of an S&P 500 index fund with monthly contributions, which is a great way to get into the market with dollar-cost averaging.
7. Automate your debt payments.
Just like saving, you can also automate paying off debt. If you have any loans or debts with payment plans, you can arrange monthly payments with your bank. If you have credit card debt or loans with high interest rates, it makes sense to direct the higher payments to the debts with the higher interest rates first in order to pay lower total interest payments. If possible (and this window may be closed) you can get 0% financing on certain purchases.
Between family and work, life can be overwhelming, and our free time is better spent doing things we love. By automating our financial processes, we can reduce stress and ensure we’re on track to meet our financial goals.
These tips will get you started on the right track, but a financial advisor can help you with more advanced questions about savings and debt repayment strategies.
As we approach another new year, instead of letting your resolutions to meet savings goals slip away over the summer, taking the time to automate savings and bill payments will keep you on track.
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment advisor located in Long Beach, California. Registration does not imply a specific level of skill or training. More information about HH, including our enrollment status, fees and services, can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personal investment advice. It should not be construed as a solicitation to provide private securities transactions or to provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek advice from a qualified attorney and accountant.
This article is written and presented by our contributing advisor, not a Kiplinger editorial staff member. You can check advisor records with the SEC. (Opens in a new tab) or with FINRA (Opens in a new tab).
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