Budget Cheat: Automate Expenses & Saving
I rely heavily on timers, calendar alerts, and alarms throughout the day. This might seem uptight or rigid to some – that I am beholden to my schedule at the expense of all else. My perspective, though, is that using tools to remind me of tasks, appointments, and cooking times can off-load the responsibility of short-term focus – freeing my mind for other, more interesting or intense pursuits.
Setting a timer helps move a cognitive load from my short-term memory – which I know to be fallible – to the time keeping function of my phone – which I know to be highly accurate. It benefits creativity, focus, and – not surprisingly – doing things in a timely fashion.
Similarly, I am a big fan of automating recurring expense payments whenever possible. Utilities, credit card payments, housing expenses – whenever I can automate, I do. One of the most impactful – and easy – ways to improve financial health is to automate savings.
Many people struggle with saving money because it seems like a “nice to do”, rather than a “must-do” – like paying bills, housing expenses, or taxes. As a result, saving can get pushed to the back burner and limited to what is left at the end of the month – after discretionary spending like entertainment, restaurants, or impulse buys.
Automated saving helps solve this issue by moving the decision from the fallible conscious mind to a reliable machine mind. It takes focus and discipline to set aside money for something that happens only once or twice a month – especially when our minds are bombarded with other things that we could do with that money. Automated saving removes the weak link from the process – our own will power, attention, and memory.
Another benefit of automatic savings is that it enforces better spending habits. Automating the must-dos – including saving – effectively reduces the amount remaining to spend on discretionary expenses – including on impulse, frivolous, or careless purchases. It's a simple, but effective, solution:
Income – Recurring Expenses – Savings = Discretionary Income
A person can largely avoid meticulous budgeting by automating all recurring expenses and savings, and paying attention to what is left. After a few months, a person should have a pretty good idea of how much money is left over each month – and feel confident spending it, since expenses and savings have already been managed.
Tip: Some banks – especially online-only banks focused on tech-savvy customers – display a “safe to spend” balance, in which recurring expenses and savings goals have been removed. In other words, the default customer view is the balance minus recurring expenses and savings. This gives the impression of less free cash available for discretionary expenses – "out of sight, out of mind” is a powerful tool for building savings and controlling spending.
For best results, money should always be moved at the beginning of the month or with every paycheck. Waiting until the end of the month increases the likelihood that the money will be used for something else. It is also helpful to reduce a monthly savings goal to a weekly or even daily practice. For example, $500 on the first of each month might seem like a big hit, but $116 per week or $17 per day feels more manageable – even though it is the same amount!
As long as savings are held in an FDIC-covered, interest-bearing cash account – like a savings or money-market account – there is virtually no downside. Funds should be able to be quickly and easily transferred back to a checking account within a few days. However, be mindful of using any accounts that penalize early withdrawal – like Certificates of Deposit (CDs) – or holdings that may not retain value over the short-term – like stocks and bonds with maturities longer than one year. All the money in the world will not help if it is inaccessible during an emergency or the holdings have lost value when a payment is due.
Timothy Iseler, CFP®
Founder & Lead Advisor
Iseler Financial, LLC | Durham NC | (919) 666-7604
Iseler Financial helps creative professionals remove stress while taking control of their financial futures. As both advisor and accountability partner, we help identify current strengths and weaknesses, clarify and refine your long-term goals, and prioritize understandable, manageable, and repeatable actions to bring long-term financial well-being. Reach out today to take the first step.