How to Make Your Finances Automagical

Every Tuesday is Finance & Family Day at Zen Habits.

If you’re like me, you dread paying bills. It’s not fun, it takes time away from reading your precious blogs (like Zen Habits, of course!), and it’s repetitive, as it happens every week or two or four. You might already be doing this, but if not, I recommend putting your finances on autopilot.

Warning: you’ll still have to do regular checks on your system to make sure things are sailing smoothly, but this system can make things much more painless.

The System
Every payday, your paycheck is automatically deposited in your bank account (right?). Once you’ve got this system set up, your savings will be automagically transferred to your high-interest savings account (pay yourself first!), then your bills will be automagically paid online. Voila! Now you just need money for gas, groceries, miscellaneous expenses, and a bit o’ mad money — and for these, I recommend cash (although a debit card is possible).

Sound easy? It is. It just takes a little bit of setup, and you’re good to go.

Here are the steps to make your finances automagical:

First, make sure your paycheck is automatically deposited into your bank account. Most companies offer this. If yours doesn’t, you’ll have to go to the bank. I’ve already forgotten where mine is.
Open a high-interest online savings account, if you don’t already have one. Some popular ones are ING Direct, Emigrant Direct, and HSBC Direct. They pay like 4x what a regular bank pays, with no fees, and all transactions can be made online.
Setup an automatic savings transfer to be made from your checking to your online savings account, every two weeks, the day after your payday (to be safe). This is an easy setup process offered from your online savings account. You’ll have to do a quickie budget to figure out how much you can afford for savings, if you haven’t already. But it’s simple: just list out all your monthly expenses, including regular and irregular bills, savings, a few basic spending categories like gas, groceries and spending, and subtract those amounts from your income. For this step, you could also set up a transfer to a money market account or other investment vehicle.
Setup your bills to be automatically paid. This will be the longest process, but it’s not hard. Just look at every bill, go to your bank’s online site, and set up online payments for them. For some, the payments can be made electronically, and for others you’ll have to have your bank send a check. Set up half your bills to be paid after one of your paychecks (every four weeks) and the other half to be paid after your other paycheck (every four weeks).
Get Yo Cash. The remainder that’s left after savings and bills is your spending cash
– for gas, groceries, and miscellaneous spending. I recommend you withdraw this as cash and separate them into three (or more) envelopes, each labeled with its spending category. That way, you can see if it’s running low and spend accordingly. You could, alternatively, use a debit card (avoid checks and especially credit cards!) for these categories, but it’s harder to remember how much you have left in each category, and so it’s easier to overspend. This fifth step would be easier if you could have the bank mail you your cash. As it is, I have to actually go to an ATM!
Monitor. You can’t just let the system go without monitoring it. I log in to my banking account about once a week to make sure all the bills are paid correctly, and that everything’s sailing smoothly.

That’s it. Quick and painless. Now you can spend less time on your bills and more time at Zen Habits. And everyone’s a winner!

What’s your financial setup? Leave us some tips in the comments.

Good articles on this topic elsewhere:

See also:

How to Make Your Finances Automagical

Every Tuesday is Finance & Family Day at Zen Habits.

Warning: you’ll still have to do regular checks on your system to make sure things are sailing smoothly, but this system can make things much more painless.

Sound easy? It is. It just takes a little bit of setup, and you’re good to go.

Here are the steps to make your finances automagical:

First, make sure your paycheck is automatically deposited into your bank account. Most companies offer this. If yours doesn’t, you’ll have to go to the bank. I’ve already forgotten where mine is.
Open a high-interest online savings account, if you don’t already have one. Some popular ones are ING Direct, Emigrant Direct, and HSBC Direct. They pay like 4x what a regular bank pays, with no fees, and all transactions can be made online.
Setup an automatic savings transfer to be made from your checking to your online savings account, every two weeks, the day after your payday (to be safe). This is an easy setup process offered from your online savings account. You’ll have to do a quickie budget to figure out how much you can afford for savings, if you haven’t already. But it’s simple: just list out all your monthly expenses, including regular and irregular bills, savings, a few basic spending categories like gas, groceries and spending, and subtract those amounts from your income. For this step, you could also set up a transfer to a money market account or other investment vehicle.
Setup your bills to be automatically paid. This will be the longest process, but it’s not hard. Just look at every bill, go to your bank’s online site, and set up online payments for them. For some, the payments can be made electronically, and for others you’ll have to have your bank send a check. Set up half your bills to be paid after one of your paychecks (every four weeks) and the other half to be paid after your other paycheck (every four weeks).
Get Yo Cash. The remainder that’s left after savings and bills is your spending cash
– for gas, groceries, and miscellaneous spending. I recommend you withdraw this as cash and separate them into three (or more) envelopes, each labeled with its spending category. That way, you can see if it’s running low and spend accordingly. You could, alternatively, use a debit card (avoid checks and especially credit cards!) for these categories, but it’s harder to remember how much you have left in each category, and so it’s easier to overspend. This fifth step would be easier if you could have the bank mail you your cash. As it is, I have to actually go to an ATM!
Monitor. You can’t just let the system go without monitoring it. I log in to my banking account about once a week to make sure all the bills are paid correctly, and that everything’s sailing smoothly.

That’s it. Quick and painless. Now you can spend less time on your bills and more time at Zen Habits. And everyone’s a winner!

What’s your financial setup? Leave us some tips in the comments.

Good articles on this topic elsewhere:

See also:

Posted on 18 April 2007 in Finance & Family |
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Comments (21)

John C Says:

April 18th, 2007, 19:44 pm

I pay all of my bills electronically, but I’m nervous scheduling them automatically. I get paid every two weeks, but a month is generally longer than 4 weeks, so the payments will slowly start to get way ahead of the due dates. For most bills, this probably won’t be an issue - they’ll just give you a credit on your account towards the next invoice. But I worry that some (ie, credit cards or car loans - yes, I’m still in the “get out of debt ASAP” phase) will eventually apply two payments in the same month, and possibly “missing” a payment the next month and getting hit with a harsh penalty.

This may be illogical and impossible, I haven’t looked too closely into the details. But I’m just more comfortable when I schedule the payments myself (which I do every payday) - Plus, twice a year I get a “bonus” 3rd check in a month after the bills are paid, which I have developed the habit of putting 90% towards said debt - it makes for a very satisfying drop in that outstanding balance.

If you get paid every two weeks, how do you handle the slow creep of “monthly” payments?

Leo Says:

April 18th, 2007, 19:58 pm

Hi John … great comment, and thanks for your question.

First of all, if you’re more comfortable doing it yourself, I would stick with that. This system is to address those who’d rather not do it themselves.

Second, I schedule my monthly payments every four weeks instead of every month. This way, the bills are paid right after my paycheck is deposited. You’re right … if the bill is due on the 10th of the month, the payment will become earlier and earlier until you’re like a month ahead. In that case, when you become a month ahead, you can skip the next month’s payment and put that in savings. If you’re worried about the payment being applied to the wrong month, I would contact the credit card company to resolve this issue. It hasn’t been an issue with me yet.

Priscilla Says:

April 18th, 2007, 21:37 pm

Thank you for the excellent advice. I’ll have to work on this.

Sham Says:

April 18th, 2007, 23:14 pm

Yes, I have set up my finances just the way you have mentioned. One thing that I have trouble is-”Setup your bills to be automatically paid” The bank takes a additional % on the bill. So I thought its best to pay it myself provided its done on time and there is no interest charged.!

Sham

Leo Says:

April 18th, 2007, 23:22 pm

Hi Sham … that’s interesting. Do most banks charge a percentage of the bills they pay? Mine doesn’t … perhaps you should shop around. I’m not sure what the norm is here, so if others could chime in, that would be appreciated.

zen Says:

April 19th, 2007, 8:57 am

I’ve got a similar set up with my credit union (and HSBC) and I get paid every two weeks.

What I usually do is for fixed expenses have it done automatically - for variable expenses I have them set up to be sent out with the last paycheck of the month, and with every bill I receive I check to make sure the payment I’m sending (or in some cases, was sent, it happens) is the correct amount and will be sent in time - I then mark the sent date and amount on the bill, and adjust the check online if necessary.

I also get no fees for sending bills through my bank - if you are getting fees, I’d steer clear and go shopping (like Leo said).

Balfour Says:

April 19th, 2007, 13:13 pm

I’ve got everything I can have set up electronically, either through Billpay, free through my credit union or by automatic deduction by the biller. E-payment is a godsend. It makes life so much simpler that I can’t even believe it.

Leo Says:

April 19th, 2007, 15:29 pm

Thanks for the comments, guys, and for sharing your experiences. Sounds like your systems work great!

Cady Says:

April 19th, 2007, 18:31 pm

I have slowly been moving to this over the last year. I opened a second checking account when my company offered us a secondary direct deposit. So I have my check split three ways. The biggest chunk goes to my primary working cash account. The second largest chunk goes a savings account at the company credit union where I declined the ATM so I can’t get to the cash except by walking in during biz hours and asking for a check to be cut. The third chunk goes to my second checking account where I have automated payments to as many companies as will allow it. But I’m really posting to mention my newest budgeting tool: Shell refillable card. There are no fees, I can add a set amount to it monthly and then I can budget my gas accordingly. (I know the downside is my $ is committed to one company but I almost always buy gas at the same station nearest to me which is a Shell. I ride a motorcycle so 58 mpg allows me not to have to shop around town to save a few pennies per gallon.) I’m about to do the same thing with a Publix card. Buy a refillable gift card that has no fees and then I can try to stay within a $100/month for food. (Yes. I’m about to see if 1 person can eat on $100 a month for food, did I mention I closed on my house on monday? I’m gonna need to budget very tightly for a while.)

Leo Says:

April 19th, 2007, 18:39 pm

Hey Cady … great system, and great ideas! I hadn’t thought about a card like that. It’s definitely something to consider.

Iskandar Says:

April 19th, 2007, 22:40 pm

Good post. I’ve been wanting to do this for a long time.

Got to do it this week!Got to do it this week!

Jess Robinson Says:

April 20th, 2007, 16:25 pm

Hi Leo,
I’ve been doing this for years, yay for European banking! My bank and the companies that I pay. also let me set up payments on every Nth of the month, so most of mine go out on the 28th every month. Money comes in on the last working day of the month, so it all works out.

I’m not sure I could cope with cash though, too tempting and easy to spend. I prefer a debit card, my banking system (code my other half wrote), grabs recent transactions from the online banking every morning, so we know what’s going on.

Jess

pf101 Says:

April 26th, 2007, 19:09 pm

Excellent post. I talk about this a lot in my classes!

plonkee Says:

April 27th, 2007, 4:05 am

I too have been doing this for years, and am often surprised that it isn’t more common (and free) in the US. Automatic billpay is for me, the only way bills are certain to be paid on time.

Marc Says:

May 4th, 2007, 19:37 pm

Great post as always! One caution I would add though is to double-check at least once a month that the “autopilot” is steering you on the right course and you don’t have any deductions you can’t account for appearing on your bank or credit card statements.

Most of my utility bills are now being paid automatically via pre-authorized payment plans via the utility company (you give them your account info and they debit the account on the day the bill is due).

However our telephone company is an exception as they process the pre-authorized payments a few days before the bill is actually due! So I’ve decided to pay manually online via my bank’s website and use my banks’ delayed payment option to pay on the due date (mind you somehow they seem to schedule the due date on the weekend! so I have to pay the bill the previous Friday!)

I like the idea of having a card you can load up and it then forces you to stick to your budget (that would be really handy for Home Depot as I have a tendency go over-budget on home improvements!) - not sure though if this is available in Canada - anyone from Canada know?

Lil'Red Says:

May 18th, 2007, 15:39 pm

Great tips! I’ve recently been working on simplifying my automagical system… I found it got to be complicated to keep track of how each bill was automatically paid (i.e. was it through my bank, through the company that sent me the bill, through a third-party), when the payment was scheduled for, etc.

For this you have to be real good with your credit cards…

I have a citibank credit card that allows me to set-up an automatic payment on-line every month! It allows me to choose to pay the minimum payment every month (i.e. - you will never again have a late fee) or to pay the balance in full every month - all without me having to log into the account. My utilities, cell phone, cable, etc. all allow me to have the bill automatically charged to my credit card every month. Almost everything is charged to my credit card all month long and then once a month an automatic payment for the full balance is deducted from my bank account (probably while I’m sleeping)!

The only items that won’t let me charge to my credit card are my mortgage and car payments. So, basically I have three bills to keep track of every month: mortgage, car payment, and the all-encompassing credit card charge. And, yes, the credit charge is set to deduct the payment just after my payday. Simple, simple, simple.

Of course, this is a recipe for disaster if you don’t pay your credit card in full every month. (I only have the one credit card.)

Horca Says:

May 29th, 2007, 7:27 am

Hi,

First of all, sorry about my English, it’s not too good.

I’m impressed about the differences between banks systems around the world. Because in my country (Spain-Europe) the company charges the bill automatically in your bank account (for free) but many times you can’t choose the payment day and we have our pay-check once a month directly in our account, and we have special benefits for it like account without charges, 0% interest credits, and much more) . But your system is good for me too with little changes.

Mr Ages Says:

June 5th, 2007, 0:22 am

Great idea— except what happens when somebody (kids, house guests, maid, mugger) swipes that $600 of spending money you had neatly folded away for them in three nifty white envelopes?

Oops.

DUH. Cash is insecure. Use a debit card — that’s what they were invented for.

The excuse “it’s hard to keep track” just doesn’t fly, IMO. If you’re too lazy or distracted to have a rough idea of how much money you’ve spent in a given day and what your bank balance is sitting at on any given day, your life needs a much greater major overhaul than just money management.

Leo Says:

June 5th, 2007, 2:55 am

@Mr. Ages: Well, I’ve been doing it for some time now, without any problems. And my grandparents have been doing it for nearly 60 years, also with no problem. I think people worry about these things more than necessary.

Sure, you can keep track of all that stuff if you want, but I prefer a simpler approach. It keeps my life just a little more stress-free.

martin Says:

June 21st, 2007, 0:10 am

What I do is just autobill all my bills to my credit card dedicated to bills, that way I only have one bill to pay a month, very simple and reduces stress. I actually love getting bills in the mail because I just laugh at them knowing I’m not physically going to have to pay them.

On your visa you`ll have something that looks like:

Rogers Wireless $50.00
Rogers home phone $25.99
Bell Sympatico $45.10
Car payment $250.00

Whatever you get the point.

Opra Says:

July 26th, 2007, 13:12 pm

I’ve been so bored with managing my daily spendings, paying bills and the like, which I as a rule do with a pen and paper, that online banking comes to my mind more frequently. It all is a question of security for me. As it is I’m still sort of suspicious about online transactions. Anyway thanks for the post, it has given me a thought.