Episode 12 – Should you automate your finances?
Episode transcript:
[musical intro]
Jenny
Welcome to Fund Your Future with DRS. Today we’re talking about automating finances. And this is a great topic that applies to budgeting and just general personal finance. Good practices.
Seth
And kind of your life in general. What do you want to automate and what don’t you want to automate? I got thinking about this because I was watching a documentary on Netflix called Get Smart with Money. And, you know, it’s really common advice to automate your savings. Just have it come out of your paycheck before you think about it.
And you don’t notice that that money’s gone and it makes it really easy to save. But they were talking about specifically on the spending side of maybe trying to make things harder to spend money so that you really think consciously about is this a decision that I want to make versus it automatically happening? They were talking about like picture in a big machine where it’s just your normal spending process and you’re kind of throwing some sand into the gears and slowing things down and making it harder, I think, to think about.
So, yeah, I don’t know. I also think a lot about decision fatigue. Like we all have to make so many decisions in our lives. And so a lot of ways it’s easier to automate those decisions and not think about them and just get payment set up to go automatically or folks who have a wardrobe that’s very simple and straightforward.
You don’t have to choose which shirt you’re going to wear. You’re always going to pick the blue shirt because you only have five blue shirts or something like that.
Jenny
Yeah, I did this a couple of years ago where I, I was trying to budget and I was doing sort of the one method, which is I set a budget and then you say, okay, whatever I have left over at the end of the month, I’ll stick into a savings account. Yes. And then I read this sort of like bucket method, which is basically you, you list out, okay, here’s my needs of how much I’m going to spend for groceries, rent, electricity and all that.
Then the second bucket is your savings. So I started with just like, I’m going to put $100 a month set up an automation. Yeah, putting $100 a month into an account for my emergency fund and $50 into an account for, like, a vacation fund. And so it’s just starting small. And I think that’s what I would recommend for people who are thinking about starting to automate their savings is just start with one automation, because as we’re probably gonna talk about a little later, it can end up biting you in the butt a little bit.
Seth
Yes.
Jenny
You don’t want to over automate and then I’ve had that happen with credit card bills but so I started with like I said, just like $150 of just these small little transactions. And then after a couple of months, I could look back at my budget and see like, okay, great. Now I can see that my savings is growing.
I can see that I have a little bit of wiggle room over here in my budget. Maybe I want to put $175 into my emergency fund every month. But it is nice to have that automation because I have it set up to come out about the 15th of the month, which is nice. It’s that sort of middle ground between like getting the first paycheck of the month and then having that savings coming out.
And then my mortgage is due again at the first of the month again. So it’s that middle point of the month that I can analyze my budget.
Seth
That’s a really I hadn’t even thought about that when I was prepping for the episode. Just thinking about when you automate, because I’ve done something very similar with my Roth contributions come out on a pay day. So then I don’t even really notice the increase/decrease in accounts. But yeah, there are other bills that might make sense to automate at the end of the month or the beginning of the month or the middle of the month.
And I think it’s one of the things that’s interesting with public employers in general is like the state is on a very set pay schedule with 10th in the 25th, but school districts usually always get paid at the end of the month. And then there are some cities and counties that people get paid every week or every two weeks.
And so that’s another way your life is automated, where some folks get more random checks because they’re able to work overtime or their jobs are seasonal. But in some ways that automation starts from the very beginning of your income. The money coming in is a set amount and kind of a regular schedule. And so planning your automation around that can be really beneficial or harmful depending on how you’re how you plan it.
Jenny
Yeah, with credit cards. So that was my story with credit card automation. Pros and cons. So it can be helpful to set up your credit cards on an automation because I had one where I was only using this credit card for gas, I think, or something, so I didn’t have it set up to automate, but then I was forgetting to pay the credit card every month.
So then they were charging me these late fees. So that can be a pro to setting up that automation is that they’re not going to charge you late fees. But then of course you have to make sure you have enough money in your account. So like I said, that would be my advice. Kind of go through and just set up one automation.
If you’re if you’re starting from scratch and go from there, you can see this automatic payment coming through every month and then maybe automate something else. So I have my mortgage automated, my cell phone bill, my car insurance payments, all those sort of things.
Seth
Yeah, things that are regular payments are much easier to automate. I actually had a very similar story when I was starting off in life of having, I think, my internet bill on a re-occurring automatic payment to my credit card. And then I, I can’t remember even exactly what I did. I either canceled the credit card or expired or something, and I had completely forgot that that Internet bill was on that [card].
And I set up for paperless statements. So I wasn’t getting anything about the bill coming in. And then I just it didn’t get paid. And then my Internet got shut off because the credit card was no longer in service. So I do think sometimes those sorts of things make people a little bit nervous about automating things. And I do think it’s also helpful…
It can be helpful to see a bill regularly, whether that’s once a month or once every six months or once a year to see if it’s changed. That can sometimes be one of the dangers of automation. You know, your car insurance went up $200 and you didn’t notice it because it was just set to automatically pay out.
And that’s where you then have to pay more attention to your credit card statements versus actually getting the individual bills.
Jenny
For sure. And I use an online money managing system. And so I’ll go through sometimes and I can sort it for, you know, just show me the transactions from Comcast and then I can see all of the other transactions for the last year. And I’m like, Oh, look, it went up in October. Yeah. Hmm. Maybe. Maybe we should figure something else out.
So doing it one small step at a time because it can be a little bit dangerous and you have to know what you’re doing. And the other thing I like to do is either have an Excel sheet or just like a note of: what are the things that are automated and what day of the month do they come out?
So my rent is on the first of the month and my car insurance is like the 10th of the month. And my contribution to my Roth IRA is the 15th of the month and so knowing when those certain things are due can help you see it spread out over the month. And then you kind of know in the back of your head you’re like, okay, the 25th is coming up.
This credit card is usually due on the 25th.
Seth
I imagine that would also be super helpful if you changed jobs or lost employment. To understand what those cycles look like, I was just thinking from your example, it could be really detrimental to your automation if you went to a job that only paid you once a month.
Jenny
Yeah, definitely.
Seth
And knowing kind of where those changes are and I imagine it’s similar if you go the other direction as well, if you go from getting paid once a month to getting paid twice a month and realizing like, Oh, I’ve got all this money in the middle of month, I wasn’t expecting to have. Because I had set up all my bills to get paid out at the end of the month or the first of the month.
So that’s an interesting way to think about how your monthly cycles are interacting, the money coming in and the money going out.
Jenny
Yeah. The other thing I was going to mention is that sometimes companies will give you maybe a discount with my car insurance company. I believe it’s they give me a discount for automating with my checking account instead of a credit card. And so that’s obviously another thing to consider if the automation is coming directly out of your checking account or from a credit card and knowing where that account is drawing from.
Seth
That’s a really good example as well. Why it’s important to keep a little bit of buffer. In that whatever accounts are being drawn down from to make sure or knowing that if you had a really big purchase or if something changed, you added a second car. And so you know, you have a higher insurance cost.
Jenny
Yeah, Yeah. Because I had that come up where I was really drilling down and I was trying to be really good about putting money aside and having that like zero at the end of the month. Yeah, but then it was kind of troublesome as well because then I didn’t have enough of a buffer because inevitably there was always something that came up during the month, whether it was an extra doctor’s bill or a little bit extra at the grocery store or something like that.
So I was like, I really should make sure that I have a bit of more of a buffer in my checking account.
Seth
It’s almost like a secondary emergency fund, like just knowing that things are going to be a little bit bumpy along the way. And like I know we were talking before we started recording about keeping track of family members birthdays and like, when am I going to buy a present? And oftentimes those sorts of things sneak up on us.
And then that’s just regular spending. It’s not like an emergency. It’s not something you would necessarily want to dip into what you would deem your emergency account for, but you might need to, depending on the circumstances and how much of a buffer you build and how you qualify those different savings buckets.
Jenny
Yeah, I think calendar reminders are one of those good tools of automating. Yeah. So, some people choose to use the more traditional method of a paper calendar and you circle the date. But I use my Gmail calendar and it’s nice because I can set up reminders. So I say, you know, every month on the 15th, this is when this credit card is due.
And so I can see those little reminders coming up.
Seth
That’s a good example. I know that’s moved more into adulting, trying to figure out what those things are that you have to remember and keep track of. And one of the things that spurred the thought for this episode was visiting my parents and seeing, you know, they have a reminder on their calendar every three months to replace the furnace filter.
And I had forgotten, you know, like, Oh, yeah, that’s right. I don’t have a system for that. And I signed up for a subscription service and have it mailed to me, so I don’t even have to think about it. But it’s like, Well, is that really the most efficient? Maybe it is, maybe it’s not. I think that’s part of the way you’re thinking about all of these things, like how they interact.
Like if I spend a dollar or two more on a furnace filter, that’s not going to break my budget. But there are things that can have a big impact. The car insurance one’s actually a really great example because I’ve seen where if you pay it once a month, it’s more expensive than if you pay it every six months.
My cell phone plan is actually like this where if I pay it once a year, it’s less expensive than if I pay it every month.
Jenny
Oh yeah. I struggle with those because I’m such a budgeting person that I would rather have it once a month because it makes it easier for budgeting that way. Yeah, but it’s yeah, it’s tricky. Some of them don’t allow you to do that. I subscribe to an app that I use as a piano lessons and they only have the one yearly subscription and so it’s like a chunk of change that comes out.
Seth
And then trying to figure out like how detailed and in-depth do you want to go? Do you want to set aside a certain amount of money every month into a specialized savings account?
Jenny
Ooof. I don’t know. I mean, I think that’s where I like to have the wiggle room.
Seth
Yeah, exactly. Exactly. That’s where having the wiggle room makes it a little bit easier. But in some ways that’s what you’re doing anyway. And I find all of this talking to people about how they do this very interesting because everybody’s kind of got a different system and it’s kind of what you fall into as you age and as you have more of these experiences.
Jenny
And it can be different across generations too, using a paper calendar versus a digital calendar or anything like that.
Seth
And probably different within households as well. My wife and I split our bills differently and I was thinking about property tax again because the bill showed up in the mail recently and my wife opened it up, was like, Do you pay this or do I pay this or do we have this automated? And so I really like your example of having more documentation around these sorts of things.
It just helps give some visibility to these things that are happening in the background. That you might not know about or remember.
Jenny
Yeah, I enjoy just documenting it because otherwise I’ll forget and I hate getting those surprises in the mail. It’s like, Oh shoot, all of a sudden this random bill shows up or there’s not as much money in my checking account as I thought that there would be.
Seth
So yeah.
Jenny
It’s nice to have that month breakdown to refer back to.
Seth
Yes, I find that sort of thing really lowers my stress level if I can look and go, okay, well this is how much I paid last year and property taxes. That’s how much I paid for car insurance. And like, okay, I know if I add all of those numbers together and I keep that kind of as my wiggle room buffer, that can be helpful, especially if I know that most of them are going to hit in one month or what that cycle is as far as what months those bills hit.
Jenny
And yeah.
Seth
I’m not sure if we got way off topic or right on topic.
Jenny
We’re right there somewhere in the middle.
Seth
Yeah, that’s good. Is there anything else you had, Jenny, that you wanted to share?
Jenny
Well, I really appreciate having this conversation. I think this is an important part of budgeting and it’s something to be aware of. That’s an option. I think our lives are becoming more automated as things move to online. Like a lot of times, you know, a lot of companies won’t even accept a check anymore. So you do have to have give them a credit card and set up those monthly payments, whether it’s things like Internet and my phone bill, like they don’t even accept a check.
So it does have to be automated. So it’s just good to be aware that those monthly payments are happening.
Seth
Yeah, and I think it can become more automated, but it can also become more complicated. And sometimes the complication is good and it gets you to stop and think about what you’re spending money on if you still want. I mean, your piano lesson example is a great one. Like, do you want to continue to do that? Yes, I do.
I know that bill is coming, so I’m going to pay for it. I signed up for some online streaming service that was a once a year bill and then it showed up the second time I was like, Oh, that’s right. I didn’t want to keep doing that. And it had already [been] paid. And so trying to keep track of those things can be a challenge and trying to figure out what system works for you, whether that’s a spreadsheet or a piece of paper or an app that helps you do it can be really beneficial when you’re thinking about your overall total budget.
Jenny
Yeah, and there are a lot of apps even out there that will go through your transactions and say, Hey, did you know that you’re spending $12 a month for this subscription service? And you could say, Oh, I had totally forgot that.
Seth
Yeah, it’s one of the reasons it could be really helpful. Just like to look at your entire credit card bill for a year and just circle or highlight or pull out the color markers or whatever and, you know, figure out the things that go together and how… how your overall spending picture looks and what’s automated and what are you making active decisions on?
Jenny
Yeah. Do you have a particular credit card that you use for a majority of your spending?
Seth
Yeah, I pretty much just use one credit card for almost all of my spending and it’s because I really like the rewards on it. And it’s an REI credit card and that’s where I like to shop. And so it makes me feel not as bad when I want to buy a new pair of running shoes that I can use my rewards for that.
Yeah. My wife is similar though she has she does a little bit of splitting between two or three cards where like some cards like you were mentioned earlier for gas or groceries and other cards are for restaurants and yeah, it always gives me a little bit of stress of like keeping track of like what’s for what. Yeah, but I think I mean, once again, like everybody has their own system.
What do you use?
Jenny
I use a PayPal credit card that I use for most of our transactions has good rewards on it. But then I also have Alaska Airlines credit card that I use for mostly I use that for personal stuff. So it’s like if it’s something for me, it’s not necessary for a household, then I can pay for it with that credit card and then that way I can budget a little bit easier for like fun expenses.
And then I have a Costco credit card that I use mostly for gas.
Seth
Yeah, we should plan for a future episode, maybe to talk about like household finances in different, different ways to have this conversation. I remember hearing someone say once that like usually within a couple, one person is the spreadsheet person. Like one person is the person who’s…
Jenny
Or like the money person – the person managing the finances.
Seth
Yeah, there’s all sorts of different ways folks set that sort of arrangement up. And some of it depends on like kind of how you have evolved into a relationship. So yeah, we’ll pencil that in for a future episode.
Jenny
Sounds good.
Seth
Good to chat with you, Jenny.
Jenny
Thank you Seth. Bye.
[music outro]
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