It’s Called Currency

If you don’t live an extra busy life, I want to know your secret. Most of us are living life in the fast lane, whether we want to or not. We’ve got work and family and friends and classes and parties and team sports and… and… and… and we still need to make time for ourselves, somehow. It seems like there’s never enough time to do everything we need to, much less those other things that we still want to do.

One way to make handling your monthly finances easier is to automate as much of the routine tasks as possible. If your bank offers online bill paying, and your power company will issue electronic bills, all you have to do is set up the payment from your checking account and it can be made for you automatically every month. You can also set an upper limit on how much will be paid automatically, so if the bill jumps, you’ll have the ability to ensure the money is there to cover it before the payment goes out. Or maybe, if you can’t get an electronic utility bill, you can get set it up on a budgeting program where you pay the same amount every month (which is adjusted every year based on your actual usage). Again, then you just set up the payment in the online banking interface and it’s done every month like clockwork with no time or attention on your part.

The first payment I automated was my home mortgage. I wanted to be absolutely sure that the money would be there every month and the payment would get made without my forgetful, busy nature getting in the way. So here’s what I did:

1. Set up a separate savings account just for the funds to pay my mortgage. (You can do this at the same bank that your checking account is with, or you can shop for an online bank that offers a higher interest rate. I chose ING Direct at the time because they had the best rate.)
2. Calculate the amount that has to come from each paycheck throughout the month to cover the next month’s mortgage payment. (This amount may change as your mortgage escrow amounts are re-estimated each year, or if the number of paychecks coming in changes.)
3. Set up an automatic transfer from checking to savings for the calculated amount to be made the day after each paycheck is direct deposited. (If you’re not on direct deposit for your checks, get there, otherwise you may end up depositing a check after the transfer—a disaster in the making, I promise.)
4. Set up the automatic monthly payment from the savings account to the mortgage holder.

Does that seem like a lot of work? Well, you only have to do all those steps once. The only maintenance to this is the adjustments to the transfer amounts that come when your annual mortgage statement arrives. Once a year or once a month? Which is easier? And don’t forget that you can include an extra 1/12th principal payment each month and pay off your mortgage quicker. (See my October 7 post for more information.)

Let me tell you, the peace of mind that comes with having that particular payment covered every month without having to think about it is absolutely priceless. If it is possible for you to split the direct deposit of your paycheck between accounts, then have the amount for your mortgage deposited directly into savings and skip the transfer in step 3.

There’s no limit on the number of savings accounts you can set up, and online banks make things even easier. You can set up accounts for your Emergency Fund, your Christmas Fund, your Trip to Scotland Fund. Separate accounts mean you don’t accidentally spend that money on something else because you forgot it was supposed to be saved for X. If you don’t want to manage separate accounts, you don’t have to, but you should keep up with how much money in your account is for each purpose, and don’t withdraw more than what you’ve budgeted for a particular area.

Put your savings on autopilot with automatic transfers into your savings account(s). Want to put $100 a month towards Christmas? Then set up the transfer to go through when you paycheck does. This is probably the best way to save because you don’t give yourself a chance to spend it before it’s moved from your account and safely tucked into savings.

For those monthly bills that vary, where you can’t really set up an automatic transfer to pay them, go ahead and set them up as payees in your bank’s online bill payment service. When the monthly bill comes in, you can quickly pull them up online and key in the amount and date to pay them. Then you can skip writing the check and stamping and addressing the envelope and taking it to the mailbox. It definitely saves you time, and you won’t risk the check being swiped from your mailbox (which is happening more and more frequently these days).

So take a few minutes to review your options for automating your payments. A word of caution: don’t get into setting up automatic withdrawals from your checking account by others. You want to control when the money comes out, not give that control over to someone else.

Tags: priorities, saving // 1 Comment »