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Dramatic title I know… but do you use bill pay or pay your bills with a different auto-pay system? If so, it may be time to reevaluate what you are automatically paying each month!
I am a big fan of bill pay and other auto-pay services. It makes life much easier by saving the time of having to manually pay, and it avoids late fees if I forget about a bill. In fact, most of the bills I pay, automatically come out of my account because they are reoccurring.
Our Auto Pilot Life
If you stop to think about it, much of our life is on autopilot. We have reoccurring schedules, reoccurring bills, and reoccurring activities. Soccer every Tuesday with the kids, swim practice on Wednesday, games on Saturday, and church on Sunday. With the stress of life, the fewer decisions we make, the better our sanity.
Most of what we do today is due to decisions we made in our past. If you have swim practice on Wednesday, it’s because you signed up earlier in the year and are now fulfilling that decision/commitment. If your kid looks more like a wounded fish than a shark in the water, maybe soccer will be his sport. Either way, you may make an adjustment in the near future to sign them up for a different sport. If you made a bad decision in the past, especially a financial one, your future self will be punished for it and need to make an adjustment.
Ever heard of Taco Tuesday? It’s my favorite weekly holiday. So much so that I like to turn the leftovers from Taco Tuesday into leftover “Burrito Wednesday” and if I’m lucky, leftover, “Tostada Thursdays!” I love Taco Tuesday because it is delicious, routine, and familiar. If it’s not broke, don’t fix it right? My autopilot life is routine and comfortable.
Finances are similar to these life choices. Where you are right now has a direct correlation to a financial decision you made in the past. All too often, we make financial choices based on how they will affect us today – rather than in the future.
Our Financial Auto Pilot
When was the last time you made an adjustment to your financial autopilot settings? Even commercial airline pilots periodically check their autopilot course settings and verify that the course they are set for, is the actual course they are on. “Set it and forget it,” is not a good course of action with our monthly financial planning.
When you fly in a plane, you delegate your trip to the pilot. You trust he will get you from point “A” to point “B” in the quickest and most safe way possible. You rely on the pilot to double check those autopilot settings. Unfortunately, unless you are ultra wealthy, no one is managing every aspect of your finances.
You are in charge of your day to day operations and the amount you want to save for retirement. Are you being a good steward of your money and setting yourself up for success? Hopefully, you haven’t stuck your head in the sand and pretended your money problems will go away.
Double Check Your Settings
As stated before, I am a big fan of automating my finances. The first thing I automate is what comes out of my income before I ever see a paycheck. That means I automate my health care (including my Health Savings Account), life insurance, and my retirement.
Before I dig too deep into this, refer to your progress in The Debt Payoff Playbook because automated retirement may not be the right step for you at this time.
What matters is that you are automating your priorities. Look at your monthly statement and double check where your money went and if your budget jives with it. Do you have unexpected expenses or missing money? Did you get charged a monthly membership fee for a service you forgot you subscribed to?
Diagnose your expenses and your budget and match them up. Next month is a new month to fix any problems.
Automate Your Priorities
If you have found all the missing money or areas where you overspent, next month let’s get on an automated plan. You should know the minimum amount you are going to put towards debt next month based on your budget. Automate that – not necessarily electronically, but spend it on paper before you rely on your willpower to hold it until the end of the month.
Arrest Your Debt's Pro Tip:
Track your investments for free with Personal Capital. It's how I track my pension and retirement funds.
If you plan to put $500 towards debt, convince yourself you are down that $500. Don’t allow yourself to dip into that fund!
If you really want to challenge yourself, pay your bills and the amount you are putting towards debt at the beginning of the month! Often, spending the first of your money on necessities, such as mandatory bills and debt repayment, will force you to stay within budget at the end of the month.
If you have $1,000, and you know $500 is budgeted for food and the other $500 is delegated for debt, don’t wait until the end of the month to put what is left towards the debt. Put $500 towards debt first and force yourself to live off the other $500 for food. I imagine having that $500 cushion has allowed you to overspend on food on a regular basis. How do I know this? Because I’ve done it…
Pay Yourself First
The whole idea of automation is to pay yourself first. You have a budget and you know where the money is supposed to go. (If you don’t have a budget, you need one – start at It’s Time To Budget Like A Boss!) A budget is only as powerful as your willpower – or lack thereof. If you lack willpower, try paying your goals up front, and force yourself to live off the rest using a cash envelope system.
If your debt is paid and you are in the retirement phase, double check how much you are contributing to retirement. If you set it and forgot it years ago, you may be allocating a dismal amount to your retirement account. In order to retire like you mean it, you should be setting aside 18% of your pre-tax income. If you are able to automate a percentage, this is the way to go. With a percentage, the amount adjusts when you work extra overtime, earn a bonus, or get a pay raise. The set it and forget it method works better if you are able to utilize a percentage.
If you still need to work your way up to that 18% number, start as high as you can, and bump it up one percentage point each year to lessen the blow. You will learn to live off less without really noticing it.
Automate To Your Advantage
Look over your budget and find out what bills you can automate to come out of your bank account each month without any action from you. Learn to live off of what is left after all the bills and debt/retirement funds are accounted for. Too often we use what is left to pay the bills and debts. We need to turn our spending around and learn to live off of what is left by paying our debts first!
This may be a new way of thinking for you because it is not something we are taught in school. Learn to automate your life by paying your debts and bills first – and live off what is left. Automate your debt and retirement to ensure a quicker payoff and larger investments!
If you’re like most of us, willpower is not your biggest strength so let’s take our human desires and choices out of the equation. With practice, you will begin to shift your money mindset and get out of debt faster than you ever thought possible. You can do this my friends and I will be here for you! You work too hard to be this broke!