One of the best steps in getting your budget under control is to automate finances. As much as possible, make your financial matters a hands off activity. This way you are eliminating human error like forgetting to send the payments or spending more than your budget allows, and your savings happens without your effort.
One of the most effective ways to automate your finances and control your spending is to limit access to your money. Your money is going to be spent the question is if it will be spent where you would like. The best example of this is 401(k). This money is normally taken out of your paycheck before you see it, like taxes. So, you do not have a choice in how you spend that money. Most people never even pay attention to how much money is taken from them in taxes.
This can be done in very simple ways. If your company has a direct deposit option you can limit yourself by only depositing the amount you need for your budget into your main checking account while remaining funds should be deposited into a savings or investment account. This helps control lifestyle creep (the propensity to spend more as you make more) because you don’t actually see an increase in your main bank account where it can be easily spent.
If your monthly budget for your bills is $1000 and you get paid once per month you would only deposit $1000 into your main checking account. If your paycheck was $1200 then you would deposit $200 in a savings account.
If you got paid every two weeks you deposit $500 per check if you can balance your bills on two different pay periods, that may take some time to set up and get right.
This prevents you from having easy access to “extra money”. I use quotes there because all of your money should have a purpose even if it isn’t immediate, and there should be a plan for all of your money. Don’t let your money sit around and be lazy, send it off to work for you in an interest bearing account, or in an investment of some kind.
Most utilities offer a budget program which allows you to pay the same amount all year round instead of being hit with high electric bills for your air conditioning in the summer and for your heating in the winter. They will average the last year of your bills and give you one median payment. This allows you to set up a recurring payments of a single amount; no forgetting and no sticker shock on your bills.
For years we split our bills in half and paid half every two weeks with our paychecks, to make sure we didn’t spend it while we were waiting for the bill. It forced us to do some manual work thanks to those three paycheck months but it wasn’t bad. Now we use a different account for monthly bills that doesn’t get touched so we always have enough money and the bills are set to pay the full amount automatically.
How have you automated your finances and made your life simpler?
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