7 Ways to Automate Your Finances and Supercharge Savings

A woman uses her smartphone to check on her finances while green icons representing money and shopping and other things float around her phone.

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With the proliferation of mobile apps and smartphones, it’s easier than ever to automate your finances. This can include automatic savings or automation of paying down debt, which is very valuable from a behavioral perspective. You’re more likely to stick with something if it is done automatically in the background – essentially out of sight and out of mind.

5 Ways to Fight Inflation’s Impact on Your Retirement Plan

The biggest hurdle with automation of your finances is actually starting the process, so don’t hesitate to initiate the process to ensure you stay on track with your financial goals in the new year.

Here are seven ways to automate your finances and fast-track your savings objectives.

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1. Set Up Automated Savings.

Since it is important to have savings, both for emergencies and for the long term for retirement, your first step should be to determine how much you want to save in each “bucket” on a monthly basis. You might want to put $100 into your savings and then contribute more to retirement.

As a general rule of thumb, it’s a good idea to have at least three months of spending needs in cash savings, or six months if you want to be more conservative. Once you translate this into a dollar amount, many bank apps allow you to set a savings goal and then set up automatic transfers to reach it and track progress. The apps will help you stay on track or make adjustments as needed if you fall behind.

2. Automate Regular Payments.

This step might be one you’ve already done in some aspects of your life. Automating all of your payments is critical to a stress-free financial game plan. This includes your mortgage or rent payment, credit card payments in full, car payment and cell phone, utility or any other regular bills you have.

If it’s available at your job, you should also utilize direct deposit with your paycheck.

Doing all of this ensures you don’t incur any late fees or stress about deadlines. Additionally, this step should include reviewing all of your automatic payments and removing the ones you no longer want, such as a streaming service you no longer use.

3. Pay Your Future Self.

If your employer offers a company-sponsored retirement plan like a 401(k), you should be contributing a percentage of your paycheck to your retirement, especially if your employer offers matching contributions. If they match the first 3% of your contributions, you’ll get 6% contributed to your 401(k) when you defer 3% of your salary. That is a 100% gain just for putting your own money into savings.

If you don’t have access to an employer savings plan, you can open an IRA (individual retirement account) with a brokerage firm and contribute to that instead. You can contribute $6,500 for 2023 (or $7,500 if you’re over 50) if you have earned income up to that amount.

Like a 401(k), you can set up automatic transfers on a monthly basis from your bank to the IRA account. Instead of the funds coming out of your paycheck, it will simply come out of your bank account instead.

4. Consider Annual 401(k) Increases.

Your 401(k) plan may offer an annual increase feature, which allows you to program automatic increases to your deferral rate annually. That means that if you’re currently saving 3% of your salary in your 401(k), you could schedule that rate to increase by 1 percentage point at the end of each calendar year, so in year two you would be automatically saving 4%. In year three, your deferral rate would be 5% and so on, typically up to a limit.

If you eventually maximize your salary deferral ($22,500 for 2023, or $30,000 if you’re older than 50), then you’re on the path to a healthy retirement.

How Inflation Can Impact Your Taxes

The IRS will adjust 401(k) contribution limits due to inflation in future years, so set yourself a reminder in your app of choice for late December of each calendar year to review the next year’s limits and adjust your deferrals to take advantage of higher limits. This allows you to spread your contributions evenly over the calendar year and not miss any potential employer-matching contributions.

5. Make Sure Your Cash Is Earning a Good Rate.

One silver lining of interest rate increases is that high-yield savings account rates are increasing, too. It is fairly easy to find an account with APY of 3% or more. That is quite a bit more attractive than just a year ago.

Of course, a 3% rate is not likely keeping pace with core inflation right now, but it’s still substantially more attractive than parking your cash in a typical checking account earning 0%.

Most of the large brick-and-mortar banks still won’t pay you anything on cash in your checking account, so it is worth the time to investigate high-yield online savings accounts. They are available through many banks and credit card companies online, are fully FDIC insured and typically charge zero or nominal fees.

These accounts can typically be opened online or through mobile apps and managed easily online. If you already have a credit card with Capital One or American Express, for example, you might take advantage of their high-yield savings accounts.

If you already have their mobile app on your phone, it’s very easy to set up automatic monthly transfers into your high-yield savings. Once that transfer is set up, you will be building up your savings fund and earning a much better rate on your cash.

Make sure to keep an eye on the rates to ensure that you are earning the highest rate, as they change frequently.

Cash-management platforms like MaxMyInterest, StoneCastle and Flourish can help automate this process.

Websites like Bankrate will also help you compare the rates at various banks if you want to choose one yourself.

6. Add Extra Savings to Taxable Investment Accounts.

If you have maximized your retirement contributions up to the account limit and your emergency savings is already at an adequate level (you don’t want to have too much of your net worth in cash, as you’ll achieve lower returns over your lifetime), you can always add any extra savings to taxable investments.

Money you put into taxable investments can achieve a higher level of return, if invested prudently, than cash to help your funds outpace inflation over the long run, and they aren’t subject to contribution limits. You can easily set up automated transfers to investment accounts, as well as orders to purchase selected investments (i.e., mutual funds) with those incoming cash flows. For example, you could purchase $200 of an S&P 500 index fund with each month’s contributions, which is a great way to dollar-cost-average into the market.

7. Automate Your Debt Paydown.

Just like savings, you can also automate paying down debt. If you have any loans or liabilities with payment plans, you can schedule monthly payments through your bank. If you have credit card debt or loans with higher interest rates, it typically makes sense to direct higher payments to the debts with the highest interest rates first to incur lower aggregate interest charges. If possible (and this window may be closing), you might be able to get 0% financing on certain purchases.

Between family and work, life can be hectic, and our free time is best spent doing things we love. By automating our financial processes, we can alleviate stress and ensure we are on track to meet our financial goals.

These tips will help get you started on the right path, but for more advanced questions on savings and debt-paydown strategies, a financial adviser can be of assistance.

How Much More Retirement Income Can You Get?

As we approach another new year, rather than letting your resolution for meeting savings goals dissipate by summer, spending the time now to automate savings and bill payments will ensure you stay on track going forward.

Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Shane W. Cummings is based in Halbert Hargrove’s Denver office and holds multiple roles with Halbert Hargrove. As Director of Technology/Cybersecurity, Shane’s overriding objective is to enable Halbert Hargrove associates to work efficiently and effectively, while safeguarding client data. As wealth adviser, he works with clients in helping them determine goals and identify financial risks, creating an allocation strategy for their investments.