How automating your finances can help supercharge your savings

Why is automation important?

One of the best things I did that helped me get on track with my money goals was automation. Without this, I wouldn’t be saving or investing as much as I am now and wouldn’t have a clear vision of where I want to be financially 🔭.

If you don’t automate your paycheck routine, it’s extremely easy to spend most your monthly income without saving anything. If we only save what’s left at the end of the month, then we’re likely setting ourselves up to fail.

It’s usually not about the willpower and being diligent with your spending. Just like with most things money related, it is about psychology, so setting up systems and automation can really help with achieving our goals 🚀.

A good example of a system doing its magic is the UK auto enrolment of the workplace pension. Since 2012 when the auto enrolment began, the private sector employee participation has more than doubled from 42% to 86%.

We need systems!

Pay yourself first

One thing I learnt from various personal finance books is the concept of paying yourself first. It means that before you start paying for bills and discretionary expenses from your monthly paycheck, you transfer a certain amount or a set percentage first to your savings and/or investment accounts.

This is a key strategy used by many financially successful people to help build up wealth, removing the temptation to spend the money on other things and prioritising your future self.

It has also changed the way I see saving and investing - I no longer save a random figure at the end of the month, but rather a set percentage of my pay that goes to my dedicated accounts every month.

How I automated my finances

First thing I did was to make sure I had the right accounts set up - general account, credit card (mainly for points), joint account as well as savings and investment accounts. If your banking app allows pots, then these can be great for setting up for different sub-saving pots 💰.

I then linked them 🔗 and set up transfers at the beginning of the month to go into the relevant accounts. If your bills come out at random times throughout the month, you ideally want to move them to one date. If like me, you get paid at the end of the month, I would suggest to set up for the bills to come out on the 1st or 2nd of the month.

It can be a bit tedious to arrange everything, but it’s absolutely worth it. You will have a clear picture of where you are each month and how much you have left once all the bills and credit cards are paid.

Here’s how I arrange my salary flow

My workplace pension deduction of 7% comes off my pay before it reaches my main account on the last day of the month.

1st of the month - 11% of my take home pay goes into my investments 📈(stocks and shares ISA) and 12% goes into my savings, which gets broken down to emergency fund and holiday savings currently. Mortgage, joint account spend and other bills are also paid or transferred on this date.

5th of the month - credit card 💳 is paid off in full.

If you’re paid more than once a month or irregularly - you can use the same steps for each paycheck or set up bills and payments to come out twice a month for example.

For this system to work smoothly I tend to leave some extra cash in my general account in case there’s something unexpected or a delay.

This automation not only helps me save and invest more, but also spend far less time on my finances monthly. If you don’t already have a system like this, I encourage you to try it!

My weekly recommendation

Another brilliant nugget of wisdom from Morgan Housel on the sort of financial advice he would want to teach his children. Fair to say that all of this advice applies to us adults too.

Until next time ✌️

Lina at Money Blues