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Now technology has advanced a lot in all sectors. About twenty years ago, imagining the automation of personal finances was next to impossible. Having your salary paycheck directly deposited into your bank account was still the marvel of technology, and paying utility bills just meant using a check leaflet every month. Today, automation is inevitable. It’s not only possible to have an electronically operated bank account, but also it’s becoming a trend to go paperless. These new financial technologies completely make it possible to put your money and savings entirely on autopilot.
So how do we do it? Let’s have a look!
You need to draw a financial blueprint for this. You need to create a sort of a balance sheet, with all the monthly income to your left and your monthly spend on the right. Income would mean any tax inheritances, tax returns, rent, bonuses, etc. and spends could be house expenses, groceries, etc. Now total up both the amounts and subtract the total of expenses from the income. If it’s a positive number, give yourself a pat on the back. That’s your monthly cash flow. If it’s negative, there’s no reason to panic. The goal is to cut spends and increase the income.
A robust financial plan will require you to create and possess three bank accounts for you to control and manage. Account number 1 for savings exclusively — this will have all your savings with respect to your future financial planning. Account number 2 — where the movement of money will happen day to day, i.e. all debits and credits regarding bill payments only. Finally, account number 3 — this is for your spending on your lifestyle (shopping, eating out, fun stuff, etc.). You need to ensure all the accounts are maintained as it is for the purpose for which they have been created for.
All your incoming payments for the work you’ve done should be automatically set for direct deposit to account number 2. Suppose, there’s a recurring payment every fortnight, it should be set and forgotten. It’s just a one-time effort and requires some paperwork. If you’re getting paid by more than one merchant, then make sure you automate that as well. This ensures none of the money is used for any other purpose than for what it’s intended and that also helps with the calculation.
You need to ensure that your account number 2 has a minimum balance that’s maintained at all times. It’s the safe minimum amount that the account should have so that doesn’t run out and go into overdraft. A lot of banks already ensure that by charging you if your balance falls below a certain point. The low balance also provides for a buffer in case there’s any interruption in the cash flow. Make sure you don’t spend more than what’s needed.
The next step is to route all your payments via autopilot. There are various ways to do this.
- Pay with a Credit Card: Most bills like insurance, cable and phone bills let you pay with a credit card. As long as there’s no convenience fee charged, it is your best bet. One, because you can earn a decent 1 or 2% of the bill as rewards on your card and two, there’s a third-party vendor involved in the payment. This becomes an advantage over paying with a debit card or a cash check because when paid with a credit card, you have a right to dispute the payment with the card company and not pay up anything till the issue is resolved.
- Pay Banks with Online Bill Pay: You can set up a recurring payment which goes via the bank’s bill pay service. This lets you store multiple bills in one place and you have the liberty to stop or change any payment, all at one place and instantaneously.
- Pay Using ACH (Automatic Bank Draft): You have to sign up with the entity who’s billing you, provide them with your account number and routing number and allow them to automatically withdraw from your account every month. This can pose a concern if the balance is low, and the biller withdraws money and puts your account into overdraft, or if your account is set to reject overdrafts, then your payment to the biller might be reversed. All this will incur overdraft/late payment fees.
Once all your debtors’ payments are automated, you can automate all your utility bills like cable bills, internet bills, gas and electricity bills, phone bills, etc. As a priority, there should be a certain amount that’s going into account number 1 — the savings account. The recommended amount to be maintained there is about three times the monthly expenditure that’s happening on all bills. No matter what, that account should not be touched unless there’s a big life goal that you want to achieve.
Make sure you also transfer a particular amount to account number 3 — your ‘fun’ account. You can automate these payments too, either weekly, bi-weekly or fortnightly, whatever suits you. The amount has to be judiciously used and kept account of. It’s important to note that this account will get money after the other two accounts’ needs have been fulfilled. You’re entitled to a little bit of enjoyment, so go ahead and don’t deprive yourself.
At this stage, you can also create a separate account which is for your retirement corpus, in which money can be automatically transferred month wise or yearly. Set up all your investments also on automatic payments. Most of the investments are generally automated like SIPs, dividends, etc. The ones which are still being done manually can be automated so that you can relax in peace while money is being saved!
Human beings are generally tempted, emotional and lazy and hence we don’t take money seriously. Therefore putting your savings on autopilot is the first and foremost thing everyone should do. This not only saves you time but also money. So, set it and forget it!