Many of us look at our finances and feel intimidated by tracking receipts, accounts and expenses. Jason Unger, on the other hand, saw this and thought there must be a better way, which he explains on his blog, Automatic Finances.
Jason spoke with us about building a better financial system and staying on top of your money.
What's the advantage in automating your finances?
There are a lot of reasons why you should be automating your finances, but generally, it's to help take the uncertainty out of what can and should be predictable things. For example, your bills. Your mortgage or rent is due once a month; schedule it to be paid online, and don't worry about having to remember to write a check or transfer the money for it. If you've got a savings goal - building your emergency fund or saving for a year-end vacation - figure out how much you need to save and how long you have to save, and treat that savings as an automated, regular "expense." For long-term investing, automating your monthly investments sets you up for dollar cost averaging, so you never buy too much when your investments are expensive, and you buy more when they're cheaper.
Just how far can we automate the day-to-day stuff? Can we configure it so it's more or less done automatically?
The best place to start is with your bills. Nearly every bill you're going to have today can be paid online, with automatic deductions from your checking account. Personally, I'm a big believer in using a debit card for every transaction, so your everyday spending automatically gets tracked and categorized using tools like Mint, which helps for budgeting purposes. At work, make sure you're set up with direct deposit so your money goes straight into your bank account on payday.
What tools do you use to automate your finances?
It's a combination of tools provided by your primary bank, where your paycheck is deposited and your money moves in and out of; a high-yield online savings account, where you can keep your emergency fund; targeting savings funds and your once-in-a-while fund for bills that come up quarterly or yearly; and your investment account, where your long-term investments are. Automating your money going in and out of those accounts, and then tracking it all in an account aggregator, makes your money work for you - instead of you simply working for your money.
What alerts should you figure for any sort of finance automation?
I check in with my money about once a month to make sure it's on track with where it should be. Along the way, I get email alerts if an account gets to a low balance.
Is there anything that really shouldn't be automated?
I don't know that there's anything that shouldn't be automated, but just because your money is automated doesn't mean you're free to do whatever you want. You're still going to spend money on day-to-day expenses, and those will vary. So you have to continually have a mindset of frugality in your everyday spending if you want to continue to grow your net worth.
What parts of personal finance do you think could have more automation?
The biggest reason why you should automate your finances is that you take a lot of the emotion out of your decision making. We're all people, so we're all prone to making mistakes or acting emotionally. But managing money comes down - literally - to dollars and cents, so if we can automate smart decision-making, then we should.