Should You Automate Your Finances?

March 9, 2010

As you might know I’m all about automating our finances. I make every effort to make our transactions live in the digital realm so they can happen automatically without us having to worry about them:

- We pay our bills with online bill pay. I setup exception checkpoints so that if bills are larger than normal I get an email or if a payment isn’t made I get a voice mail.

- Our paychecks land in our bank accounts via direct deposit and our investments are made automatically as well.

- My wife and I put most of our purchases on our American Express Blue cash card to help organize and categorize our spending, plus earn credit card rewards.

- We don’t spend a lot of time budgeting, our spending doesn’t vary that much from month to month so we don’t spend a lot of time focusing on how we’re spending our money.

Is this the smartest way to do things? It’s what I’m most comfortable with but a new book from Baker at Man vs Debt called Unautomate Your Finances takes an alternate look at this approach.

Why Not Automate?

I think the line that best sums up Baker’s approach is that “the more you simplify your financial life, the easier it is to take back control”. He and his wife have been battling consumer debt and have the used the methods he describes in his book to pay it down. Their approach has been to have as few accounts and as little automation as possible so they can focus all their attention on the money they have, and the money they owe.

Here are some of Baker’s arguments against automating your finances:

  • Automatic payments mean that you don’t notice as much what you’re spending your money on
  • Automation makes your bad habits harder to change by pushing them to the back of your mind

Credit Cards vs Cash

Baker’s not a fan of credit cards and believes that paying in cash can make a real difference in the way you spend your money. As he says, paying with cash “lowers the time between when you make the purchase and when you ‘analyze’ your spending. ”

I’m in the middle of reading a book on behavioral economics called “Why Smart People Make Big Money Mistakes” and research has shown that Baker’s theory is correct. People do spend their money differently when they’re paying with plastic vs paying with cash.

Spending Exorcism

The useful thing about “unautomating” your finances is that you get in touch with every penny you’re spending and come to terms with how you’re using your money. It’s almost like a debt intervention, or a spending exorcism, or like basic training for your budget. You get down in the mud and track every cent that comes in and out of your possession and ask yourself, “am I really spending money on the things I want in life”?

Why Unautomation?

I didn’t ask Baker why he wrote the book but you get a good feeling for why he might of from one of his early quotes:

“We’re living in upside-down homes, driving upside-down cars, and now even watching upside-down t.v.s on upside-down couches”

I can tell he’s astounded by the enormous amount of consumer debt we’ve accumulated in our country and wants to do his part to help people out with it.

So What’s the Answer?

So how exactly do you unautomate your finances? Baker goes into a lot of detail about emotion vs. numbers and how to pay off your debt by fighting small battles; not getting overwhelmed by everything at once. He offers an alternative to Dave Ramsey’s debt snowball called the debt tsunami; which gives you more flexibility about how you pay off your debt.

Baker offers lots of very specific actions and offers worksheets and instructions for:

  • Creating a budget
  • Following a envelope budgeting system
  • Creating an emergency fund
  • Deciding whether you want to use credit cards

Taking Action

So would an automation proponent like me consider taking Baker’s approach of buying everything with cash and tracking my purchases with paper and pencil for 30 days? It makes me squirm to think about it but perhaps that’s an indication that I should take another look at our current process.

I love the automation because it means I don’t have to mess with the recurring bill payments, fund transfers, and trips to to the bank. But I imagine going through those steps would make me look a little closer and think a little harder about how we spend our money.

I’m not committing to “going native” with my finances but I like Baker’s book because it makes me think about how aware we are of what we’re spending. It also offers tons of action steps we can take to make sure we’re staying on top of our money and Baker does a good job of getting you fired up to take action when you read it. If you’re looking to get out of debt or get a better handle on what you’re spending then you might want to check out Unautomate Your Finances.

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Ben

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Ben
Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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15 Responses to Should You Automate Your Finances?

  • Credit Girl

    I think automation definitely has its benefits, and you should see how it impacts your spending habits before you gibe up on it. It can make your life less hectic, and it means your bills will always be paid on time.
    To read more about automating your banking, this site really helped me understand the different types.
    http://www.peakpersonalfinance.com/how-to-automate-your-banking/

  • bardo

    i pay my bills online and would never automate, I like to have control and know precisely what is leaving and entering my account in any given time..automation can have you lose track of this fairly easily if you have too much activity.

  • Learn Save Invest

    I don’t necessarily subscribe to the idea of automating my bill payments. I like to observe my bills and make sure I’m not being overcharged for anything. It also lets me keep tabs on my expenditures.

    However, I think automation for investments is key. I believe you should still watch your investments, and strategy, but put regular investments on autopilot. If you pay yourself first, you always come out on top.

  • Ben

    @Lillie depending on which tool you use to automate your payments, you can still keep tabs on what money, went where, and when.

    @Jon I do like the fact that automating payments helps you make them on time.

    @Raj, I agree, people with excessive shopping problems definitely put themselves at a disadvantage by using credit cards. But I think that even if you’re a responsible spender that recurring charges can creep up on you over time and it doesn’t hurt to do an audit every now and then.

    @Paul, some bill pay companies allow you to setup customized rules for each bill. For example, only pay my American Express credit card bill automatically if it’s under $875.00. If it’s more than that don’t pay it and send me an email alert instead.

  • Daddy Paul

    Paying bills on line is fine. I just want to review each bill before I pay it. When the power company bills be 1000 for one month because of an “estimate” I do not want that paid just yet.

  • Raj

    I think he is addressing different type of audience here, people who are financially literate can automate their finances and continue to use credit cards (as they pay them in full). I personally do not see any benefit in using cash (and worry about carrying nickle and dimes). People who have tough time controlling their habits of excessive shopping or putting everything on card need to follow this. Just my two cents (even though I do not carry change).

  • Jon

    I spent way too much time getting my bills almost completely automated. I have no desire to go back to the old method of bill paying. It has saved me a bunch of time, kept me from worrying about missing any due dates on utilities, and actually saved me postage and check printing costs.

  • Lillie

    Although I pay my bills online, I haven’t made the transition yet to automation. My primary reason is that I like to keep tabs on where every penny is going and at what time. I guess it still keeps me in control. As I am nearing retirement, my goal is to pay off all of my bills and have only minor ones such as utilities. At that point, complete automation will probably be an option.

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