If you struggle with spending less and saving more, automating your money and savings every pay cheque can really help.
Automating your money means when you get paid, a certain amount gets put into different accounts (like savings), or used for bills right away.
After a day or two, the amount left in your account is how much you can spend, until you get paid again.
Here are some good reasons why you should look at automating your money.
You’ll be in control
How many of us go through our pay cycle spending and ‘hoping’ there’ll still be money available. When you get your pay cheque, calculate how much you need for the essentials. Then work out how much is left, and how much you’ll save. Once you automate your money, you’ll feel more in control.
You’ll avoid late payment fees
Sometimes, a bill slips through, we miss it and get charged late payment fees. Or we need to borrow money to pay it so we avoid the fees. Neither is good for our savings. Some companies, like your mobile phone company, might let you reset your account date, so the bill comes on your payday. It’s much better than receiving a bill a few days before you get paid. Automating your bills helps you avoid late payment fees and ‘borrowing from Peter to pay Paul’.
It helps you budget
By removing all the money from your account you don’t want to spend, you’ll be left only with what you can spend. You should create a budget for that money. If you’re left with $800, and you get paid every fortnight, you can safely spend $400 each week without it affecting other areas.
It can make your savings goals achievable
When you’re saving money, you might have a goal in mind. The sum might sound like a lot of money, but breaking it down into fortnightly savings can make it realistic. Putting aside $50 a week can make your goals seem within reach.
You’ll save first
Many of us are probably guilty of hoping we’ll have money left over at the end of our pay cycle to go into savings, which never actually gets there. If you spend everything you get, automating your money can help because you’re saving first, then spending the remainder. Your savings will grow every pay cycle.
You’ll benefit from dollar-cost averaging
If you’re contributing to a KiwiSaver account, or have other investments, contributing small amounts regularly is an investment strategy. It’s called dollar-cost averaging. It’s where an investor deposits a fixed amount, say $50, regularly into an investment, no matter what the financial markets are doing. Some weeks, you might get more shares for your $50, and other times, you might get less, so it’s a way to reduce volatility and even out your contribution.
Savings will be a habit
Hopefully, after a while and once your savings have been set aside, you’ll stop worrying about it and won’t notice the money’s gone. That’s the beauty of automation. You’ll get used to knowing how much you can spend every pay cycle, which can really reduce your stress. You don’t have to worry about money as much, and it’ll free up time, too.
You’ll spend more consciously
When I started automating my money, and was left with a set amount to spend each week, I became much more money-conscious. With only a few hundred dollars a week of play money, I knew I had to limit what I was buying. I was guilty of impulse spending, like ordering a new product I saw online, or a new book I’d seen – one swipe and it was bought. I started making a list of things I wanted to buy, and half the time, after a week, I’d lost interest in buying the product. Having a budget every week made me think hard about what I spent my money on.
Published 20 January 2020
Pie Funds Management Limited is the issuer of the JUNO KiwiSaver Scheme. You can read our Product Disclosure Statement. All content is correct at time of publication date. This article is general in nature only and has not taken into account any particular person’s objectives or circumstances. Before relying on it, we recommend you speak with an independent financial adviser.