“Automating your money is the bees knees” – every financial expert ever
If there’s two things you can count on in the world of personal finance, it’s that spending your money on coffee is dumb, and automating your finances is smart. While I can’t say I agree on the first one on the list (pauses to sip his Panera Bread coffee he just “blew” $2.25 on WITH FREE REFILLS, BITCHES!), I do happen to agree with the 2nd one. But only about 69%* of the way.
So let’s talk about the 31%** that rarely gets its due: the virtues of MANUALLY managing your money!
Virtue #1: Appreciating Your Money
We’ll start with something we all hate, but we have to do to keep living in this great awesome nation of ours we call U.S.A (or, any great nation for that matter): Paying taxes. We all have to do it, and it sucks, but nothing gives you more of an appreciation for money than having to manually send in a check every three months to pay your fair share to the community.
To give you a better sense of this, here’s how much I’ve paid over the past 3+ years of self-employment:
- 2011: $5,575/quarter
- 2012: $8,000/quarter
- 2013: $8,600/quarter
- 2014: $2,800/quarter (change in business/life)
Do you know how HARD it is to send in a check for those amounts? Every 3 months? At first I bitched and moaned and called it the most annoying part about working for yourself, but as an older and wiser man now, I’ve actually come to really appreciate it.
Yes it still stings like a mother every damn time, but it a) gets me to STOP and soak in the reality of the situation (when was the last time you reviewed your tax %’s?) b) it gives me a small burst of “way to do your part” to feel good about for a hot 2 seconds, and then c), and most importantly, it gives me a great chance to revisit my strategies on ways to try and pay LESS before the next round hits ;) Nothing prompts your savings muscles as much as sending in a $8,000 check to your gov’t! Haha…
Virtue #2: Appreciating Your Success!
Similar to manually paying your taxes every quarter, every time you manually shoot some savings or investing money in your accounts you get a burst of accomplishment right off the back. In fact, you feel it the second you click that “submit” button. (Or, as I like to call, the “F*ck Yeah!” button). It’s a shot of endorphins like no other.
Now can you get the same feeling by automating all your savings? Of course. And, for a majority of people who’s especially lazy/forgetful/untrusting of themselves, that’s probably the smart move. But don’t underestimate the power of physically moving your money to better places too. I can’t think of much that gives you a better feeling than that, outside of maybe having sex ;)
This also works with paying down mortgages/debts off too. Yes you can automate the payments and have it do the work while you sleep, but this is the type of work you most certainly WANT TO BE AWAKE for! Don’t you want to see those numbers dwindle before your eyes? Wouldn’t it feel insanely satisfying chipping away with every click of the mouse?
For me it sure does, and for that reason I manually pay (both) of my mortgages manually every single month. Making sure to round up for extra pay off every last time too. You get double the virtues for your money this route: feeling the burn (aka appreciating your money) on TOP of appreciating your success! It’s a double whammy all good people deserve to feel :)
Virtue #3: Taking Control
The last of the three un-automating virtues is that of control. When you have the time to review and double check that all your bills or savings you’re about to release line up appropriately, you’re less inclined to get screwed in the end. I can’t tell you how many bills of mine were jacked up, or how many wrong purchases were applied to our credit cards over the years. And had they all been on rotation we would have paid for the mistakes ourselves and *hopefully* eventually caught them at some point.
So if you’re automating your entire life like most experts suggest (again, this may be better than the alternative of forgetting/spending all your money before you save!), just be sure you’re taking the time to *review everything* at least once a month too. Having stuff automated is supposed to make your life easier, not forget about your money altogether. If you’re not checking up on it every once in a while, you could be doing yourself (and your wallet) a great disservice.
Along these same lines, you also want to have a better grasp of where your money’s really going. My man Len Penzo said it best with his recent article on why he actively manages his money:
“Taking the time to track and analyze your income and where it’s going is a crucial element of managing your personal finances. That’s because doing so uncovers hidden money leaks that help you better allocate your resources, thereby ensuring you always get the most out your paycheck. It makes it easier to set financial goals too.”
While most people would vomit at updating spreadsheets for over 20 years in a row (that Len is a beast!), you can’t help but appreciate the reasoning for it. Every number you punch in and update forces you to stop and think about what’s going on with your hard earned money. Sure you know you pay $150 for cable/tv/internet, but would your feelings towards it change every month you type it out into your budget? Would you eventually get sick of seeing the $150 and *do something about it*? Maybe, maybe not. But by automating everything odds are you’ll think about it a lot less frequently.
For this reason I still manually pump out my own budget and net worth every month so I can see, appreciate, and know everything that’s going on with my money. The likes of Mint and Personal Capital are great – and people love ’em – but it does take away a little hard work that can sometimes make the difference.
How I Manage My Own Money
True to the 69%/31% ratio, I automate a lot of my own money, and I actively manage the rest. As much as I love Len’s “track everything” style, it just doesn’t work for my life anymore.
Instead, I cheat a little and use a credit card to automate a bunch of my expenses, and then at the end of every month I have *one* spot to review and check up on stuff before manually paying the bill in full. Not only does this hit all 3 virtues for us, but it also reaps free money in the end by milking the credit card rewards for purchases we were going to make anyways :) It’s the perfect concoction of both management styles for us.
If it helps, here is everything we automate on this card (we rock USAA Credit Cards):
- Cell bill
- Cable bill
- One-off expenses
- All other utilities
And here is everything we manually pay purposefully:
- Our two mortgages
- Credit cards
- Roth Ira contributions
- SEP Ira contributions
- Quarterly taxes
In Conclusion of Un-Automating…
So to recap, automation is good and you should definitely do lots of it to keep your finances (and sanity) on point, but also be sure to find ways to STOP and appreciate your money as often as you can too. Whether that’s monthly sit downs for an hour, weekly 20 min pings, a half automation combo like we do, whatev.
As long as you’re aware of the benefits and drawbacks of each, and pick the route that works best for you regardless of what the experts and/or I say, you’ll be treating your money with respect. And nothing sucks more than when your money bitch-slaps you back, believe me ;)
Now go on your way and OWN that money, friends! If you have any good tips for us in this department, please do share below. Pros and cons all over the place with this stuff, but it never hurts to re-consider the game plan if it gets you closer to that freedom in the end. Always a work in progress…
PS: I once received my paychecks in straight up cash, and I can tell you for a fact it’s a lot harder to spend holding all those $100 bills in your hands vs electronically. The whole situation back then was a bit sketchy (the company went out of business and we ended up suing ’em), but the point still holds true: physically receiving your paycheck vs auto-depositing can heavily skew your actions… Always good to challenge things!
* I did indeed make up this percentage. You may recall it from sex 101?
** Also, studies show odd numbers come across as more “real.” Especially studies that are made up by anonymous personal finance bloggers…
[Photo cred: randychiu]
PS: Some of my favorite tools:
|Personal Capital (FREE) -- If you’re looking for a robust financial tracker, Personal Capital is the way to go! They’re like Mint, but on steroids and have much better tools for investment and net worth tracking. // Full review|
|Digit (FREE) -- A super easy (and automated) way to save. Every day Digit analyzes your income and expenses and will push money aside for you any time it sees extra sitting there. I've saved over $4,000 myself using them so far! // Full review|
|Acorns -- Having trouble finding money to invest? Check out Acorns – they round up all your transactions to the nearest $1.00 and drops the difference into an investment portfolio for you. Easy way to start investing! // Full review|