How To Put Your Finances On Auto-Pilot

March 26, 2018

Years ago, I had a friend who was a single, recently divorced, full-time working mother of four, with three of the kids under the age of 5. To call her life busy would be an understatement. She asked me for help organizing her finances and I agreed — I knew whatever strategy we developed had to be easy and automated. Here’s what we did:

Automating the budget

The first thing we worked on was her budget. We looked at a variety of budgeting websites (there are many great money management websites), and she decided on Mint, which she said was the easiest to learn. She also liked that it helped her to keep on track without her having to input a lot of information.

Putting some rules in place

Once we got her information loaded and categorized her expenses, we made sure to put rules in place in Mint to continuously assign each expense to a particular budget category. We then changed some of the budget categories to ones that matched her needs.

What she loves most about this step

What she loved most was that Mint created the initial budget based on her current spending, was able to tell her when she got off budget, and it alerted her to high withdrawals or when she was close to maxing out her credit cards. This made her aware of her spending so she quickly developed a plan to pay off her credit cards. It also recorded all her credit card transactions, including an unapproved charge that she was able to get taken off.

Automating bill payment

Next set up electronic bill payments through her bank. She was a little nervous about just setting up automatic payments with the vendors, so we decided to go this route, but make it as easy as possible. To get started, she entered each of her bills, including the account numbers and passwords to her online account, then selected the ebill option through her bank.

Most of the bills took about one billing cycle to show up, but soon she was able to see all of her bills online. She also set up email reminders through her bank so as soon as a bill arrived, she got the email. Once the ebills were set up, she was able to log on to her bank and pay her bills in about one minute.

When e-billing isn’t an option

For the bills that did not have an ebill option, she set up the bills manually and was able to still pay online except the bank would issue a check rather than send the funds electronically. This is how she set up her childcare and mortgage payments, including reminders so she would not forget them. Instead of her having to mail a check or go to each child’s daycare to make a payment, she could quickly go online to pay the bills.

Automating emergency savings

The next thing we did was to set up a savings account for emergencies. She recognized that she did not have the discipline to save with an account attached to her checking account so we opened an account at another bank and linked it to Mint instead of opening it at her bank. Then she contacted her payroll department to automatically have a small amount withdrawn and put into savings. Because she was still working on her budget, we choose an amount small enough for her to do continuously.

Automating retirement

We then looked at her employer benefits and realized that she had not increased her 401k plan contributions in about 4 years. We did an auto escalate — this is a feature that allows you to automatically increase your 401k plan contributions annually, up until you reach a certain amount. She initially was a little nervous about doing this until I told her that she can choose an amount that she is comfortable with and she can always stop it if it gets to be too much of her paycheck. We chose to auto escalate 1% annually up until she got to 10%.

Automating investing

My friend is about as hands off as you can get when it comes to investing. She had not opened her statements in years. We talked and decided that a target date fund based on her retirement date was the best option for her. The fund itself does the re-balancing and adjusting, giving her a sigh of relief.

Automating tax savings

Between my friend’s four kids, she joked that she spent a quarter of her month at either a doctor’s or dental appointment. She then complained about the co-pays and always feeling blindsided by an unexpected medical expense. I mentioned doing a healthcare FSA, an account that allows you to put money aside pre-tax and then use the funds tax-free for medical expenses. She also set up a dependent care FSA for her childcare expenses as well. Both of these steps will save her tons of money in taxes, while also allowing her to use payroll deductions to set the money aside.

With all of these features in place, I told my friend that she is now a money management ninja ready to conquer all of her financial goals. The best part is that her time and effort spent on money will be minimal going forward.

Now if only there was a way to automate parenting…