Financial Planning, savings

Automating Your Finances & What Does It Mean

Automated Finances - Saving

Rarely heard: I’m saving too much.

On the contrary, according to a survey by Bankrate, more than half of Americans couldn’t cover three months of expenses with an emergency fund.  Almost 25% don’t have any emergency funds at all.

Younger Americans have especially poor savings habits.  About 57% of people between the ages of 25 and 40 report not having either emergency savings or enough funds to cover three months of expenses.

The combination of high inflation and the pandemic became the perfect storm for savers, causing a significant reduction in savings from pre-pandemic levels. 

The situation is even more awful for those who hope to retire.  An employee with a salary of $35,000 and who will live 20 years in retirement is estimated to need $572,000 in total retirement savings.  But a recent survey found that the median savings are only $71,500, far short of that modest goal.

Automated Finances - Saving

The overall situation for those saving for retirement is grim.  More than 25% of those surveyed have less than $50,000 in retirement savings, and 16% have nothing saved.  

Given these statistics, it’s hardly surprising that nearly half of Americans believe they’ll outlive their retirement savings.  If you want to avoid falling short of meeting your retirement goals, here’s a powerful suggestion:  Automate your savings.  But what does it mean to automate your finances?

How to Automate Your Finances

Here are some answers and how you can do it:

Pay yourself first

Before you pay any bills, pay yourself.

If your employer has a retirement plan or a 401[k], and especially if the employer matches your contribution up to a certain amount, automate your contribution so you contribute at least the minimum amount required to get the maximum employer match.

Even if you don’t qualify for a retirement plan at work, you can set up automatic deposits to a traditional IRA, Roth IRA, or other retirement accounts.  For 2022, the total contributions you can make each year to a traditional and Roth IRA can’t exceed $6,000, or $7,000 if you are 50 or older.

Ask your bank if you can make these deposits automatically every month.  Over time, and with the benefit of compounding, these contributions can add up to a sizeable nest egg.

Track spending

Household debt hit a record of $16.15 trillion in the second quarter of 2022.  Much of the increase in credit card balances coincided with rapid inflation.  It’s hard to increase savings when you are saddled with debt, especially high-interest credit card debt.

If you want to get a handle on your finances and start saving more, the first step is to track your spending habits.  You can do so manually by writing down everything you spend and putting those expenses into categories.  If you are comfortable with Excel, it’s an excellent tool for this project.

Several apps can make tracking expenses easier.  One of the leaders is Mint, which syncs with your accounts (savings, credit cards, loans, investments), tracks your expenses, and allocates them to various categories.  

Automated Finances - Saving


Few are excited about preparing—much less sticking to—a budget, yet doing so is critical to your effort to get your spending under control.

Set major and subsidiary goals.  A critical one is reducing or eliminating debt, especially high-interest debt.

Budgeting apps can do a lot of the heavy lifting.  You can find a helpful list here.

Try these savings tips

Once you have a handle on your spending and have prepared a budget, it’s time to analyze where you can cut back on expenses.

  • Insurance  

How long has it been since you checked to see if you can save money by switching carriers for your homeowner’s and automobile insurance instead of automatically renewing your policies every year?

  • You are dining out 

If you have a budget that should include dining out, stick to it.  When you hit the maximum monthly spend, eat at home until the next month.

  • Switch to debit cards  

People are addicted to credit cards.  Using them makes it deceptively easy to overspend.  Consider cutting up your credit cards and using only your debit card.  It’s a bit of a process because you probably have accounts that automatically debit your credit card every month.  

You can find helpful suggestions for making the switch here

  • Save the difference

Once you’ve reduced your spending, automate saving the difference.  If you cut back on streaming services and save $50 a month, make an automatic payment of that amount into your savings account.  Follow the same process with other savings, like paying off a car loan or mortgage.

Without a process for saving what you are no longer obligated to pay, that money will slip away.

Automated Finances - Saving

Understand the barrier

It’s not difficult to automate your savings, but psychological barriers may impede your efforts.

It’s notoriously tricky to defer gratification.  You may feel compelled to make choices that benefit you immediately rather than focusing on long-term goals.  Psychologists have coined the term “present bias” to describe this behavior.  It is “the inclination to prefer a smaller present reward to a larger later reward.”

If you want to get on track to reach your financial goals, you’ll have to overcome present bias and automate your savings.


Let us help you create a comprehensive, customized financial plan.

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