By Rob Schulz
I am intrigued by the promise of driverless cars. Driving can be stressful so heading down the road from point A to point B without having to think about it sounds appealing. It may be a while before it becomes a reality, but in the meantime, there are several ways we can automate our finances to get where we are going financially with fewer headaches and greater success.
Decisions around finances can be hard to make because our situation is always changing and we’re never quite sure what the future holds. But in order to achieve our goals, we have to make the best decisions we can. I think most personal financial decisions can be made once then revisited every year or so. This way, progress is made with minimal time, effort, and stress.
The best example of this is your retirement saving. Far and away the best retirement savers are the ones who automatically have a certain amount of money deducted from their pay or bank account every pay period or month. They don’t have to think about it. It just happens and more than likely it would rarely happen if they constantly had to decide. Unexpected expenses and conflicting goals make it very difficult to decide every month whether or not to save for something that could be 20 or 30 years in the future. Automate your retirement savings and it will just happen without you having to worry about it.
The beginning of the year is a great time to set new savings goals not only for retirement but also for other things. Most importantly, I think everyone should have a savings account with at least three months of expenses saved up if not more. Are you a little light in this area? Use an automatic draft from your checking account over to a savings account in order to increase your cash reserves. I have some clients who set up different accounts for all sorts of savings goals, like vacations, property taxes, Christmas gifts, etc. If this is the way you want to go, credit union accounts are well suited to this kind of automatic and segregated savings plan. A solid savings account balance is crucial to long-term personal financial success so be sure to get this part of your finances squared away before anything else.
Once you have all of your savings automated, it’s time to head over to the expense side. For most folks, income taxes are already automated as they are deducted from your paycheck. Even so, every once in a while you should make adjustments to your withholdings. Use this handy IRS calculator to help determine the right amount of withholding for your current tax situation: tax withholding estimator. If you are self-employed you probably have to make your own quarterly tax payments and this can become dangerous territory. If you are struggling to keep up with your quarterly tax payments I would suggest that you automate them. Go to eftps.gov and set up your tax payments ahead of time for the whole year. You can set up as many tax payments as you like and adjust them as necessary if things change. If you can set up your tax payments to better coincide with your earnings things should go a lot easier.
And what about those annoying monthly bills? Your bank should have easy-to-use bill pay features. Set up automatic payments where you can, so you don’t have to think about it. I think it’s best to “push” payments as opposed to allowing others to “pull” bill payments from your bank without your express permission. This allows you greater control, but either way, these automatic payments make life so much easier. Try to automate as many of your regular bills as you can.
Finally, if you have any revolving debt on credit cards or with retail stores, it should be a priority to get rid of these high-interest rate charges. Either calculate a payment amount that pays down your balance and set up automatic payments, or refinance the debt into an installment bank loan that has a lower interest rate and does not “revolve.” A revolving debt basically has no beginning or end so you could pay the minimum balance from now to the end of time and it will never go away. An installment loan has regular planned payments that expire the debt in a finite amount of time. Set up the installment payment to be paid automatically from your checking account and now you don’t have to worry about it anymore. Over time, the debt will go away.
I know thinking about all of this stuff can be stressful, but that’s why you want to automate. Unfortunately, just like driving around in the Metroplex, an unexpected surprise can come out of nowhere. But if you are regularly and automatically investing, saving, making tax payments and paying your regular bills, you’ll be in a strong financial position and better able to deal with whatever comes your way. Here’s to your financial success in 2021!
Rob Schulz is a local Certified Financial Planner and author of “Thoughts on Things Financial: Your Guide to a Chaotic Money World.” He can be reached at firstname.lastname@example.org. Buy his book here: https://www.schulzwealth.com/book/
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