This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.

Tuesday, December 4, 2007

Financial auto-pilot

Posted by Matt

I'm a big believer in simplifying whenever possible, and finance is an important area for it. I've written previously how I try to limit the number and types of different accounts I have, but even more important is trying to get to a place where I can just relax and not think about any of it very much.

Obviously I still think about personal finance a lot (or you wouldn't have anything to read!), but my hope is that some day I will have finished evaluating all of my investment options and settled on a limited set of recurring service providers and I can make everything totally automatic. The extent to which we are able to do this is, in my opinion, one of the great examples of the contributions of information technology to our modern lifestyle.

Let me illustrate with my Verizon cell phone bill.

Step 1: I created an account on their website so that I can access my information without having to wade through telephone menus.

Step 2: I signed up for paperless billing. This means less mail to retrieve, sort, open, read and recycle (and saves trees!).

Step 3: I signed up for automatic payment by providing my bank information and giving my consent to have them withdraw the money directly from our checking account.

Each month, my total involvement amounts to reading an email from Verizon that tells me how much money they are taking out this month. This is a step I don't want to skip, as I do like to keep tabs on it. Can everything be this easy?

Well, I've done it with our mortgage, property taxes (part of the mortgage payment) and almost all of our bills so far, and I'm trying to remember to set it up every time I get a bill that I have to pay manually. Also, my retirement savings is automated through my employer-sponsored 401k (and Social Security withholdings) and my son's college savings is set up for an automatic monthly transfer from my checking account. We do still write the occasional check: for soccer dues, payments to our daycare providers (which vary), etc. Some of you may be thinking, "I do that with my bank's Bill Pay service", and I tried that, but it still felt like something that I had to manage, more than just monitor.

I should say that this strategy isn't right for everyone. If you are still living paycheck-to-paycheck, then you need to be very involved with all of your vendors to make sure that your payments are timed in such a way that your checks don't bounce (and you don't have to pay the associated fee). Once you have a little bit of cushion between your expenses and your income, however, automation can help by preventing you from forgetting to make a payment.

In an ideal world, I would never touch cash and everyone who I bought goods and services from would just take the required payment and leave me a little electronic receipt. I guess that when we get to the point where we can use debit cards everywhere, we will have arrived (or maybe it will be when Burgerville offers me a charge account.) I'm really hoping that the future will hold the possibility of being able to transfer money directly to other people's bank accounts. I still have to cash a load of checks every few months when I get reimbursed by all of the players on my soccer team for the dues payment I make, and it would be nice if they could just wire it to me. I know that Paypal offers a service like this, but that is yet another account to set up and maintain and I'm hoping that my bank will just offer it someday.

One last note: I'm not the only one that has seen the benefits of automation; among others, J.D. from GetRichSlowly lists automating finances as one of his keys to living debt-free. (By the way, congratulations are in order for J.D. as he just made his last payment on debt he has been carrying for twenty years. Way to go! Check out his site for lots of great advice and motivational stories about getting out of debt.)

1 comment:

Leah in Oregon said...

Great post, Matt! I'd like to add that it's not always a good idea to give providers your bank information for automatic withdrawals. Often, should you decide to cancel your account, it's very difficult to stop the provider from continuing to take money out every month. A better way to do it is to authorize a charge on your credit card, if they accept credit. Then, should they make an unauthorized charge, you can just dispute it with your card company.