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However, before you decide to automate, it’s important to consider the pitfalls. I love that my finances are mostly automated, but I’ve also run into a few snags. Make sure you understand the pitfalls, and how to avoid them, before you move to financial automation.
When your finances are automated, it’s easy to think that you don’t need to pay attention to what’s happening with your finances. I learned the hard way that you still need to check in to make sure that everything is happening as it should.
A few months ago, a clerical error resulted in one of my husband’s direct deposit amounts was less than it should have been. We didn’t realize this. Bills were deducted on cue. Retirement account contributions were made. The automatic savings plan went forward.
Our account was overdrawn.
Because so many of our financial actions are automatic, we weren’t checking our accounts like we should have been. We just assumed everything was going according to plan. When I finally did take a look two weeks after the ill-fated direct deposit, our overdraft fees were at more than $300. We did recoup most of those fees from the university, since the mistake was theirs, but it was still quite a shock.
Your automated finances aren’t an excuse to check out when it comes to your accounts. Occasionally checking to see that amounts are correct is important. You don’t have to be obsessive, but it helps to take the time to glance into your accounts regularly, and to reconcile your account statements at the end of the month.
When you decide to automate your finances, you also need to pay attention to cash flow. Before pinpointing dates for automatic withdrawals and transfers, make sure that you know when you will receive your money.
You should know how much you can expect to have coming in, depending on whether you are paid weekly, bi-weekly, or monthly. When we began automating our finances, we had to take into account the fact that my income comes mostly via PayPal. So, it can take a few days for eChecks that I receive to clear and be available in PayPal, then it takes another few days for the money to make it to the business account and, finally, for the transfers to the personal checking.
It’s a convoluted process that means that I need to space the automatic transfers of money out of the checking account around when I am likely to have money in the account. The fact that my husband has a set pay schedule for some of his work has been rather helpful in all of this, but we still need to make sure that all of the scheduled debit actions fit around our income. Otherwise, it’s just one overdraft after another.
Automating your finances can be a great way to keep on top of bills (especially while you are away from home) and make sure that you are making retirement account contributions. You can even use automated finances in your debt reduction plan and in your efforts to build an emergency fund.
However, like all tools, you need to use automation properly. If you are careful with how you set up your plan, and if you take a few minutes on a regular basis to make sure that the right amounts are involved, you will be more likely to avoid the pitfalls of automated finances.
To read more guest blogs by Miranda, click here.
Miranda lives in Utah and is a freelance writer and professional blogger, specializing in topics related to personal finance and business. Her work has appeared in, and been linked to from, a variety of publications, online and offline. Miranda blogs for a number of web sites, and has her own personal finance blog, Planting Money Seeds.
This is important information that is overlooked or not known by most people. Please read the entire article.