Managing personal finances plays an important part in ensuring that people can enjoy their life, not only today but also in the future.
According to Mogo Canada, advancements in technology have made it much easier to manage finances in the 21st century, yet many people continue to ignore how important it is to do this.
Automating finances undoubtedly plays a key role, creating a platform for people to keep control of their income and outgoings far more effectively.
While this can take a little time to set up, the long-term rewards outweigh the effort that is required by a considerable margin.
In the first instance, it is imperative to conduct a complete analysis of all your accounts including bank, savings, credit cards, investments and pensions.
From there, identify all of your regular financial outgoings and make a comprehensive list of your monthly expenditure.
When all of this information has been gathered, you will be able to start the process of creating a system that fully automates all of your personal finances.
Read on as we take a closer look at the main things you need to address to automate your finances and find out what experts have to say about these.
Set up automatic transfers
When you have linked all of your accounts together, you can start to set up automatic transfers to be paid from your main checking account. Businesses are increasingly switching to automated payments to manage accounts payable and expenses so why not follow suit with respect to personal expenses as well?
Most major banks and financial advice websites offer an excellent range of finance tools to manage your personal finances, while there are numerous downloadable apps that allow you to comprehensively monitor your financial activity.
Finance expert, Ramit Sethi, is an advocate of automating all transfers and payments to ensure that personal finances run smoothly.
He says it is important for people to establish an automated system that fits with their individual needs in order for it to be successful.
“Most people neglect one thing when automating: dates,” he said. “If you set automatic transfers at weird times, it will inevitably necessitate more work, which will make you resent and eventually ignore your personal-finance infrastructure.
“For example, if your credit card is due on the 1st of the month, but you don’t get paid until the 15th, how does that work?
“If you don’t synchronise all your bills, you’ll have to pay things at different times and that will require you to reconcile accounts. Which you won’t do.
“The easiest way to avoid this is to get all your bills on the same schedule. To accomplish this, get all your bills together, call the companies, and ask them to switch your billing dates.
“If you’re paid on the 1st of the month, I suggest switching all your bills to arrive on or around that time, too.”
Address your debt issues
It is fair to say that many people carry some level of debt around with them and not everyone has a system in place to address this.
As part of setting up an automated financial plan, it is imperative to make a list of all of your debts along with details of how much you should be repaying.
Moving credit cards onto zero percent interest is a good place to start, giving you some valuable breathing space and reducing long-term costs.
If you are unable to reduce the interest rate you are paying, it is imperative to make repaying those debts as quickly as possible.
Finance journalist, Martin Lewis, says that setting up an automated personal finance plan is doomed to failure if debt problems are neglected.
“Debt is more than a money issue – it can have a huge impact on your sense of wellbeing,” he said.
“If you’re in debt, often you need a lightbulb moment to get out of it – the realisation it won’t sort itself out. You need to act.
“If you’ve got lots of debts, list them with the highest APR first. Put all your spare cash towards getting rid of that highest interest rate and pay minimum payments on the others.
“Don’t pay off the big one, pay off the highest interest one.”
Reduce household outgoings
With financial automation established and debt issues addressed, the next sensible step is to try and reduce your monthly outgoings.
Staying loyal to the same service providers each year can be a costly business, and it makes sense to use comparison sites to secure better deals.
Set up automatic alerts for when your utilities, phone contracts, subscriptions and insurances are due to renew to avoid costly price hikes.
Brightwater Accounting founder, Cathy Derus, believes that everyone should make it a priority to reduce their outgoings wherever possible.
“Many people often find they have automatic payments for subscriptions, some of which they don’t even use,” said Derus.
“Spend 15 minutes assessing your various subscriptions – magazines, streaming services, apps you signed up for and forgot to cancel – and think about if you’re still into them or if there are any you want to get rid of. They can seem like a small monthly payment when you sign up, but they add up.
“Set a Google reminder for when your subscription is set to renew and instead of auto-renewing, use this time to negotiate a new rate. If the company is scared you’ll leave, they’ll often offer you a deal.”
Save for the future
Another key element of automating personal finances is to establish monthly payments to savings and investments.
Sethi recommends that a minimum of five percent of your monthly salary should go towards savings, and this figure should be increased if you can afford to.
A further element to consider is your pension, as this plays an integral role in ensuring that you can continue to live life to the full once you finish work.
Tom Selby, senior analyst at AJ Bell, advises people to include pension contributions as part of an automated personal finance plan to secure the best results.
“As a very rough rule of thumb, aiming to save roughly half the age at which you start contributing as a percentage of your salary is a good place to start,” he said.
“So, for example, if you start contributing to a pension at age 25 that implies a total contribution of 12.5%, while delaying until age 30 means you might need to set aside 15%.
“If that rule of thumb sounds overly ambitious, saving something is better than nothing, as your contributions will be boosted by pension tax relief and employer contributions.”