Whether it’s setting up direct deposit, transferring money from a checking to savings account or paying bills automatically, putting your money on autopilot is often heralded as the best tactic for sticking to a budget, especially for the younger, more tech-savvy crowd who can navigate online banking with ease.
However, while the concept of automating finances is one of the most popular personal finance strategies recommended by experts, gurus and bloggers alike, it’s important to examine the consequences of automation — the worst of which is inattention.
Automation lets people be lazy with their money, reinforces bad habits and makes it too easy for errors to occur unnoticed.
Imagine if you spent your time working on developing better money management skills, rather that crafting elaborate account alerts and transfers that resemble a game of Mouse Trap. The inability to save money and pay bills on time boils down to a lack of education and dedication; ignoring the problem — which is exactly what automation does — doesn’t fix anything.
Why Automating Your Finances Is a Bad Idea
1. You Won’t Review Charges on Bills
When bills are out of sight, they’re definitely out of mind. No one who has a spare five minutes decides to use it to review his cell phone or gas bills. This makes it easy to pay for extra fees and accidental charges without ever even knowing it.
On the other hand, if you have to log into your bank account every month in order to pay a particular bill, you’re forced to at least look at the balance for five seconds. This is usually all it takes to notice when something has gone awry.
2. Your Bank Could Mess Up
In order to automate your finances, you have to put complete faith in the organizations and technologies steering it all for you. And as almost everyone has experienced at one time or another, things don’t always run smoothly.
Take Mike Arman, a former mortgage broker who owned rental property with a small second mortgage on it, totaling a monthly payment of about $180. He was continually pressured by his mortgage company to enroll in automatic bill pay, but he was not interested and continued to refuse the service. He was undoubtedly relieved he did so the day his bill for $2,340,000.00 came in the mail.
Arman described his subsequent phone call with his lender as:
“If I had signed up for automatic billing, would you have taken the money out of my account?”
“And if I didn’t have the two million dollars and change, wouldn’t I get an overdraft charge from my bank?”
Arman adds, “Obviously, they had screwed up, big time. Equally obviously, they now realized that they were looking at MAJOR problems from LOTS of people who had been suckered into automatic billing. I wasn’t one of them.”
It’s an extreme case, of course, but all it takes is one ill-timed automatic withdrawal to set off a chain reaction of expensive overdraft fees and bounced checks.
3. Bad Habits Are Reinforced
Paying with a credit card instead of cash has been proven to reduce the mental anguish associated with overspending. So what do you think happens when you not only shop on plastic, but your credit card bill is also paid off every month without you ever having to look at it?
Automatic bill pay allows you to spend carelessly without ever having to acknowledge it. You might not be in debt, but that doesn’t necessarily mean your finances are under control.
4. There’s Always That Chance You Won’t Have Enough Money
Months ago, I signed up for automatic bill pay on my Time Warner account — while cable is one of my larger expenses, I couldn’t bear the thought of missing an episode of “New Girl” because I forgot to pay the bill that month.
However, after enrolling, I failed to notice that I hadn’t actually been charged anything for not one, not two, but three months in a row. Finally, Time Warner decided to send the whole three-month bill through — late fee included — and my account took a $400 hit I was not prepared to receive.
Luckily, I did have enough money to cover it, but that might not have been the case if the charge posted later in the month.
Develop Better Habits Instead of Automating Your Finances
Automating finances is definitely a good choice for some people. Ramit Sethi (blogger and author of “I Will Teach You to be Rich”), for example, relishes in the fact that he automates every part of his life that he possibly can, including his finances. It works great for him, but let’s be honest — Sethi is not an average person.
We often assume that because something is convenient, it’s good. But when it comes to managing your money, convenience is not as important as awareness. Instead of mentally checking out from your financial life by automating it, make it a point to instead become more conscious of your role in it.
Photo: Nick P