For many consumers, mailing in bill payments or manually balancing a check register can feel like a blast from the past. Today’s technology makes it easy to automate all sorts of financial tasks, including paying bills, donating to charities and contributing to a retirement account.
[See: 10 Foolproof Ways to Reach Your Money Goals.]
“[Financial automation] helps to simplify some of the more rudimentary financial tasks that we all have to do,” says Jacquette M. Timmons, a financial behaviorist, author of “Financial Intimacy: How to Create a Healthy Relationship with Your Money and Your Mate” and president and CEO of Sterling Investment Management Inc. “In addition to the simplification, it can also help you to be a little more organized,” she adds.
But before you start automating financial tasks, consider the following benefits and caveats.
Retirement contributions. Employees with an employer-sponsored retirement account such as a 401(k) or 403(b) may already be making automatic contributions to their retirement account. Experts generally recommend this practice, especially if you’re getting an employer match.
Barbara O’Neill, a distinguished professor and financial management specialist with Rutgers Cooperative Extension, points out another benefit to automatic investing: dollar-cost averaging. “If it’s all automated, it’s going to happen,” she says. “You’ll buy more shares when the prices are down and over time, you pay a lower cost per share.” You’re still subject to market downturns, but you’ll be able to buy more shares and stay invested even when other investors get nervous and cash out. “It protects you from your own biases if you will,” she adds.
You can also make automatic contributions totaling up to $5,500 per year (or $6,500 if you’re over age 50) to an individual retirement account outside of your employer retirement account. “If you’re able to put away the $450 a month, you probably don’t notice it as much as a $5,500 payment at the end of the year,” says Ryan Inman, a financial planner at Physician Wealth Services, LLC.
[See: 12 Steps to a Stronger 401(k).]
Transfers to savings or investment accounts. Beyond investing in a retirement account, you can also automate transfers to a savings account or investments in a taxable account. “If you’ve got more income that can be saved, then automating that is a very smart thing to do, essentially as forced savings,” Inman says.
Some consumers use a savings account at a separate institution from their everyday checking account so it’s harder to access that cash, but Inman encourages clients to prioritize simplicity. “I think the complexity of having more accounts will ultimately hurt the consumer trying to save or budget or keep track of everything,” he says.
Most banks or credit unions will allow you to automatically transfer a set amount of money into savings at specified intervals. Alternatively, financial apps like Stash and Acorns help automatically invest money, while Digit moves small amounts of money to savings when you can afford it.
Card-linked offers. Many consumers find couponing to be a hassle, so card-linked offers let you save automatically without digging through your wallet for slips of paper or scanning your phone. Here’s how it works: You opt in to available offers through your credit card issuer or a third-party service like Trim, Dosh or an airline dining program. You then automatically earn cash back or miles each time you use your linked credit card. No paper coupons or receipt scanning required.
Bill payments. Automatic bill payments for student loans, rents, mortgage, credit cards or utilities ensure that you never miss a payment, which could result in penalties or damage to your credit score. But if you’re not reviewing your statements each month, you could be paying for things you no longer use or you might miss billing errors that cost you money.
Maybe you thought you canceled your gym membership or you forgot about that music streaming service that offered a free trial. “You might be really diligent about using that product for six months and now another six months have gone by and you’ve not used or touched it,” Timmons says. “Because it’s automated, it’s deducted from your account and the amount is small enough that you don’t pay attention to it.”
Bill-tracking tools like Hiatus and Truebill can monitor your accounts for recurring charges you might have missed, but there’s no substitute for manually reviewing the accounts yourself. Also keep in mind that if your account is breached and you receive a new card number, you’ll likely need to update your bill payment information. O’Neill says that can be a blessing in disguise. “Maybe it’s a good thing to reassess,” she explains. Ask yourself: Am I taking advantage of these services?
Donations. If donating to charity is part of your budget, then setting up recurring donations helps you spread out the expense over the course of the year and ensures that the nonprofits you support have money for programs outside of the usual December fundraising push. And while a rewards credit card might net you extra points or miles and some extra consumer protections, charities pay extra fees to accept credit cards, so your contribution may not stretch as far.
Before automating these financial tasks, O’Neill suggests finding a bank or credit union you love. “It’s going to be hard to undo things [if you switch banks or run into problems],” she says. Auto-paying bills with a credit card gives you the ability to dispute charges you didn’t authorize. For example, if you canceled a subscription and they keep charging your card, you can dispute the charge. However, keep in mind some bills charge a fee for paying with a credit card.
[See: Your Month-to-Month Guide to Savings.]
If you have an irregular income due to freelancing, contracting or commission checks, then you may want to think twice about putting your bills, savings or investments on autopilot. Instead of letting the bank or your service provider auto-debit your account, Timmons recommends that people with irregular income put a reminder on their calendar when bills are due. That way, you can move money to your savings account when you have a surplus, but you won’t have to worry about bouncing a rent check. Regardless of how much you automate your money, “it’s really important to understand how every dollar comes in and how every dollar goes out,” Inman says.
More from U.S. News
8 Big Budgeting Blunders — and How to Fix Them
9 Ways to Avoid 401(k) Fees and Penalties
5 Financial Tasks That Can Be Automated originally appeared on usnews.com
