Money Infant

Baby Steps to Financial Freedom

Saving Money and Time Through Automation

One of the greatest development in terms of productivity and time savings of the 20th century has been automation. Starting with Henry Ford’s car production line and continuing through to the current tech revolution based on increasing processor speed (and efficiency) automation has created wealth and increased the standard of living like no other invention in the history of the world.

We take much of this automation for granted in our daily lives and most of you probably give it little or no thought. However, automation can be one of the keys to unlocking your financial freedom. Taking one quick and easy step can help ensure your financial security far into the future.

Automate Your Savings for Financial Peace of Mind

Automation is happening all around us in finance every day. ATM’s have made it quick and convenient to withdraw, deposit and transfer money. Billions of dollars in currency is shifted globally on a daily basis through the automated forex system, making trade cheaper and more efficient. Financial transactions of all types and sizes whisk effortlessly through automated computer systems making it easy to buy goods and services, pay invoices and bills and collect from your customers.

With all this automation literally at our fingertips it only makes sense to use it to our advantage right? No matter what type of saving strategy you have you can use automation to simplify your savings plans.

If you work for an employer with a 401(k) plan chances are you are already automating some of your savings (you are contributing right?), but there are so many other great ways to automate your finances.

Automatic Emergency Savings

If you haven’t yet set up your emergency funds (both sudden emergency savings as well as longer term emergency savings) then an automatic savings plan is perfect for you. Every bank that I know of allows for automatic withdrawals from your checking or savings account. In most cases you can even set this up online with no need to go to the bank physically. The really nice part is that if you are looking to save $1000 you can set up a $100 per month automatic deduction and after 10 months you are set without ever thinking about it again. Just make sure to set some kind of reminder for yourself at the 10 month mark so you can divert that $100 to another type of automatic savings.

Automate Your IRA

If you are under the age of 50 you are eligible to contribute up to $5000 a year to an IRA (either Roth or traditional). Why not simplify that process by having $416 sent directly from your checking account to your IRA account? Dead simple and guaranteed $5000 a year saved towards your retirement.

Sinking Fund Automation

A sinking fund is used to save for large one off purchases such as a car, vacation or down payment for a house. Because these are large purchases it is important to maintain your saving schedule if you ever hope to reach your goal. And there is no easier way to ensure you stay on track then by automating a set amount directed to these accounts each month. Think how wonderful it will be to know you will have the money for your down payment on x date, because you are automatically pumping money towards that goal each and every month.

Dividend Reinvestment Plans (DRIP’s)

Dividends are a great way to create a passive stream of income as well as minimizing your tax bite. An underutilized feature of many dividend bearing stocks is the automatic reinvestment of dividends, but this feature provides a surefire way to automate your savings and increase your passive income with each passing dividend cycle. While the traditional method for setting up a DRIP requires you to purchase one share of the stock and have the certificate delivered to you (or your account), many brokers now offer synthetic DRIP’s where they take care of all the paperwork and requirements for you. Each broker will have a list of companies available for DRIP investing. The DRIP Wizard lets you search over 800 companies offering DRIP’s.

Those are just 4 ways that you can free your mind and your finances from savings by making it automatic. The benefits are huge; increased savings and investment, peace of mind, time spent more efficiently and perhaps most important no more emotional connection to your monthly savings. Perhaps the #1 reason people fail at saving is that they sabotage themselves. They take their blogging money and use it for something else, rationalizing “Oh it’s only $100” or “I’ll catch up next month”. But typically they don’t catch up and those $100 hits can add up to a substantial sum over time.

Are you already automating your savings and in what ways? If you haven’t yet set up an automatic savings plan what is holding you back?

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16 Responses to “Saving Money and Time Through Automation”

  1. Nick says:

    Thanks for the shout out, Steve. It’s certainlyi no secret that I’m an automation junkie. It’s really an almost perfect plan, IMO.

  2. Edward Antrobus says:

    Since we mostly live of my wife’s income, my paychecks go into the savings account and we dip into that as we need.

    One thing I won’t automate is payments. A friend of the family has a horror story of a $500 store credit that was being paid off in $30 monthly installments. 5 years later, he discovered they were still taking those payments! He paid $1800 on a $500 debt.

    • That’s great you guys can live on just 1 paycheck and bank the rest! I’m not too crazy about automating bill payments either for much the same reason your friend got burned.

  3. Modest Money says:

    I have an automated payment going to my retirement savings each month. I try to make all of my bills automated too. It can save a lot of time which is great when you’re very busy. Plus it ensures that you don’t forget any of those payments. People new to automation just have to make sure they always have enough money in their account to cover all those automated payments.

    • Savings I like to automate, but bills not so much. I know it helps you to not forget to pay any bills, but I find that by paying manually I am forced to keep a better eye on my budget and not let things get out of control there. There’s no doubt though that automation can save you a nice chunk of time.

  4. retirebyforty says:

    I automate my 401(k) contribution. That way I also take advantage of dollar cost averaging. Automation is the way to go.

  5. Dollar Disciple says:

    I like to automate some things, like bill payments and long-term savings like vacations and cars.

    For other things like emergency fund savings and investing, I like to transfer these manually just cuz I like moving money around. I look forward to making these transfers every month.

    • Yeah I know there are some people who enjoy making the monthly transfers. I think the transfers for investing are particularly fun because not only do you get to do the transfer, but then you get to allocate the money in your investment account.

  6. MyMoneyDesign says:

    Automation has made saving incredibly easy! The 401k, 403b, and IRA’s are all fully automated. I’ll be working on the DRIP next. I like your idea about having a “sinking fund” as well. We’re all going to need a new car or to go on vacation at some point – better to plan ahead for these things!

    • Glad you like the sinking fund idea, it has worked well for me as long as I don’t rob it. Much easier when you automate it though and so nice to be able to just pay those big expenses.

      • MyMoneyDesign says:

        That says it all right there – don’t rob it! For me, the year always starts off good. But then towards the end (especially around Christmas), I always need to “borrow” the money until I can replenish it with my profit sharing check in January. But I guess if the money is already earmarked for a sinking expense, there really wouldn’t be much harm! As long as we don’t any high interest or create credit card debt, all should be fair, right?

        • Yeah Christmas is always a time I am tempted to rob the savings as well, but I’ve short circuited that by creating a sinking fund for Christmas. No more worrying about where the money is coming from for presents and a set budget too. If you are replacing the money that’s cool, it’s kind of like giving a loan to yourself (without interest). The problems start for most people because they often neglect to pay themselves back after lending the money to themselves. You are definitely right though that at least you aren’t running up any credit card or personal debt this way.

  7. Amanda L Grossman says:

    I am definitely a huge fan of automation. We automate as many bills as possible, as well as savings. The only issue becomes if there are months where we don’t stay within our budget–then we have to remember what we automated away and on what dates!

    • I always had a notation in my budget when a bill was automated, including the date. That always worked well for me. Now we don’t have to worry about it because there is no automation in Thailand!

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