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.
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”?
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
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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