Whenever I find myself with extra cash in my pocket, I’m often tempted to spend it. I usually look at that cash as having already been accounted for, so there’s really nothing bad about spending it on something fun, right?
When those thoughts pop into my head, I know exactly what I need to do. I just go empty that spare change into the spare change jug on my dresser. That jug contains a mix of coins and dollar bills that have found their way into my pockets.
In a way, the same exact thing is true with my checking account. If I look at my checking account balance and it’s quite high, I can sometimes feel tempted to spend money on things that I don’t really need.
The solution for my checking account is really not all that different than the solution for my pocket change. I have a plan for that money, a plan that’s so incredibly simple that it becomes trivial to follow it.
I simply pay all of my bills automatically out of my checking account. Online banking makes this a snap. I just have every bill I possibly can – and that’s most of them – set up to pay automatically near their due date each month.
This serves several purposes.
First, I don’t really have to think about it. Once it’s all set up, there’s not really anything to do. Your bank just automatically does it for you. Your bills are paid without even having to lift a finger.
Second, it adds just a bit of concern about excess spending from my checking account. This, for me, is a very good thing. I know that when I look at my checking account balance there are going to be further withdrawals from the account automatically. It’s similar to the sense that I get when I know there are outstanding checks, except that I don’t actually have to write the checks.
I’m encouraged by this to not spend frivolously from my checking account and instead make better choices about how to spend my money, because the consequences of going ahead and spending – potential overdrafts, potential missed bills – are worrisome. I’m simply more careful about my checking account.
Third, I’m never late for bills. If everything is paid automatically and set to arrive before the bill’s due date, then I know I won’t be late for bills. I don’t have to check due dates. I don’t have to remember to make sure that a certain bill is paid. It just happens.
Fourth, it saves me time in the process of paying bills. I don’t have to sit down with a checkbook and a calculator every two or three weeks to pay a pile of bills. They’re just paid. I check my online banking perhaps once a week as part of my normal web surfing, taking perhaps a minute or two, and that’s it.
Finally, it enables me to reach savings goals. This is really the clincher for me. If I’m saving for a goal (and I’m usually saving for two or three of them), I can automatically have the money routed away from my checking account into my savings account (or accounts). The amount would be whatever it would take for me to reach my goal in the desired timeframe.
So, let’s say I’m saving so that I have $10,000 to buy a car in four years. That takes 48 months, or 204 weeks, to achieve. I might decide to have $50 taken out of my checking account every week for the car, or $200 every month. This could all be done automatically so I never have to think about it. Then, at the end of the four years, I have the $10,000 I need to buy myself a nice car without going into debt for it.
Automation is the key to all of this. It saves time, it keeps you psychologically from sinking into a spending routine, and it helps you achieve your savings goals. Automating your finances as much as possible is an essential tool for personal finance success.
This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book ,” which is available and at bookstores everywhere. Images courtesy of , the proprietor of which is my “photography intern” for this project.