Many people know that I am a huge proponent of using automatic savings, and automatic bill paying to help manage my finances.
There are many advantages to doing this – fighting temptation to spend “extra” money, saving time having to make these payments/transfers every period, and simplifying your finances, immediately come to mind.
However, there are also certain risks involved with putting your finances on auto-pilot.
We will discuss several of them below.
Failing To Reconcile Accounts
To me, the biggest risk with automating your accounts is the fact that you may fail to reconcile your accounts. This can happen in one of two ways. First, if you are automatically paying your credit card bills when they come in, you may overlook the fact that you need to check the statement for errors.
What if there are charges on your bill that don’t belong to you, or are for more than they should be? You may go a few months without checking your statements and could end up missing fraudulent charges, interest rate increases, or other important information. By paying off the balance (or even just the minimum payment) automatically each month, you may miss all of these important notifications.
Also, if most or all of your transactions are automated, you may not stay up to date with your checking account. If your account is hit with any unexpected transactions, then you can easily be thrown into an overdraft situation! It might not even be errors which need to be detected and corrected, but it could be an infrequent expense (such as a subscription) that causes chaos in your checking account.
This is not to say that you will never take a look at your finances if you choose to set up automatic payments; but it does make it a lot easier to overlook certain things.
Disconnected From Your Financial Reality
One of the things that I have found is that by automating payments, I have become disconnected with my finances. Now, I try to go through my transactions and savings every two weeks (the Saturday after I get paid), but it’s still not the same.
By having everything automated, it can feel as though your finances are operating on a continuous cycle that doesn’t require your involvement. Because you do not have to look at your statements and review every charge in order to pay your bills, you may not be as inclined to look for ways to reduce your expenses or increase your income.
You may find yourself going a few weeks without looking at your bank account. Then that may grow to months. By having all of your bill payments and transfers to savings and retirement accounts happen automatically, managing your finances can easily fall into the background of your life.
Start To Lose Motivation
If you don’t have your goals constantly set before you, you may lose your motivation to push toward that goal. Whether that goal involves trying to pay off debt, building up an emergency fund, saving for retirement, or being in a position to increase your giving, it helps to visit that goal often.
By automating your finances, you may miss the opportunity to check your progress often. For instance, if you have set up automatic transfers to establish an emergency fund, you probably won’t look at the balance of the account very often. However, if you have to log onto your bank’s website and set up a transfer every two weeks, it will help to set the goal before you. Of course, if you use personal finance software, you should be able to see all of your account balances at a glance – but you still need to look!
If you have long-term financial goals, you need to stay motivated in order to see them through. Automating your finances can help you to give those goals a place of priority in your finances, but it can also take away your motivation by allowing you to be less involved.
- Do you automate your finances?
- Are there any bills/transfers which you choose not to automate? If so, why?
- Have you found any other potential problems with setting up automatic payments?
I do check each and every credit card statement that comes in and frequently log in to my checking account to make sure that I can account for each and every expense. I can see where some people don’t do that and can get surprised by fraudulent charges.
Steve-Personal Success Factors says
Thanks for this reminder. I have been at both extremes. I used to track everything in detail, and that was great, for I remained very engaged. However, life happens: as I got busier and busier, I found that I neglected the financial tracking, then gave up altogether. That wasn’t good either. Then I felt good when I started automating everything, except that complacency set in. Now I am at a happy medium: I’m going back to tracking the main categories that need tracking, and to reconciling my accounts on a monthly basis.
Jenna, Adaptu Community Manager says
1. No, but I do pay bills online.
2. Yes, to protect from over draft charges.
3. Not knowing exactly how much money I have to make a large purchase on the spot if needed.
John @ TheChristianDollar.com says
Khaleef, it’s so ironic you wrote this article today! I just recently wrote an article about the potential problems of automating your finances on the PerkStreet Blog. You can check out that article here: http://blog.perkstreet.com/how-automating-your-bills-could-be-costing-you-money/
Great work, love it!