Why to Use Automated Savings and Bill Paying (part I)

Does it sometimes seem impossible to ever get ahead? Dividing “what’s left over” after the bills are paid between a little bit of fun money, a little bit of savings, and a little bit of planning for the future can be a very depressing prospect. However, there are a couple of simple concepts that can help you reach those long-term goals with fewer struggles:

· Pay Yourself First: deposit part of your paycheck into your savings and long-term funds before you ever see the money.

· Make It Automatic: automate any regular money transfer that you can.

Author David Bach has written an entire book on these concepts, called The Automatic Millionaire - I heartily recommend buying or borrowing this book for some easy-to-follow steps on how to painlessly automate your financial future. We’ll summarize some of the main points here :

Why pay yourself first?

Why on earth would you plan to limit your disposable income each week, and then make it happen automatically? Well, frankly, because you’re already used to it.

Let’s look at everything that already comes out of your paycheck before you get your hands on it: taxes, Social Security, health insurance, 401(k), student loans… the government and your employer both know that if these payments aren’t made automatically, they won’t likely be made at all – not reliably, not over the long run. These programs are successful because they always get paid, regardless of your day-to-day frustrations and challenges. It’s time to take a lesson from their playbook.

When you make arrangements to have some of your income transferred to emergency accounts, savings, or investments every month, you’re putting your own priorities on a par with those of the government and your mortgage company – isn’t that how it ought to be? You no longer have to feel guilty about “blowing” the money in your pocket when you know you “ought to” be saving some of it for a rainy day or for retirement, because it’s already taken care of – everything in your pocket is now spendable cash.

If your budget is tight, the amounts you save don’t have to be large. Start with paying yourself five percent of your income, and see how you do – you might find that if you don’t see the money in the first place, it’s fairly easy to adjust. If it’s too painful, reduce the percentage – down to 1% if you have to – but try to gradually build up to ten percent or more. This can be easy if you redirect the extra money from a raise toward savings – you’ll be earning more, but living on the same budget to which you’ve become accustomed.

Why use automated tools?

· We live in an automated world and if it isn’t convenient it won’t be a priority.

· Most of us are trained to think in terms of paying bills and then blowing what is left over.

· Almost no one has the discipline to give the same payments the same priority every month for years on end, particularly in the face of short-term distractions or emergencies.

· When we have a pile of paper bills and envelopes and stamps, it’s easy for some things to get buried (accidentally or not so accidentally). Late payments can cause you aggravation or guilt, cost you time and money to fix, and affect your credit score.

· All of the tools are out there waiting, and financial institutions will often offer you better terms and incentives for using them.

· You always have the option to “turn it off” for a month or several months if misfortune strikes – deactivation takes about five minutes on the phone or online.

· Most of all: it takes all the financial clutter out of your head (vague plans and vague worries alike), and lets it take care of itself. You gain peace of mind and the ability to enjoy your everyday life more fully.

Follow this link to read part two of this article: Why to Use Automated Savings and Bill Paying (part 2)