This post Automating Your Finances? 4 Things to Avoid appeared first on Daily Reckoning.
Personal debt is the highest it’s ever been in the United States but a large majority of Americans are dealing with it responsibly.
According to LendingTree, 95% of borrowers living in 100 of America’s largest cities pay their bills on time. Researchers used credit reports from the first quarter of 2018 from more than nine million of its users.
They ranked the largest 100 American cities by the percentage of people who had at least one account overdue, and found that nine out of the top 10 cities with residents most likely to pay their bills on time were west of the Rocky Mountains. The researchers can’t explain the geographic trend but they were shocked by how many people pay their bills on time.
I have to say I’m a bit surprised too. But, really, it shouldn’t come as a total shock. With better lending products and more knowledge than ever about credit cards, consumers have all the tools they need to keep debt in check.
One recent tool that’s increasing in popularity is financial automation through online banking. Now you can set up auto-pay for your credit card bill, mortgage, and other bills, and it takes less than 10 minutes to set up.
Also, the fewer decisions you have to make, the better. I’m a big advocate for automating your finances because it fixes a lot of your bad money habits. Instead of you having to muster up willpower to save an extra $200 per month, you can set up automatic transfers of $100 bi-weekly to your savings account and you don’t have to think about it again.
The downside to automation though is it’s a system you create that needs to be monitored closely. You may free up some time by automating your finances but it could also turn into a costly experiment if you don’t know what you’re doing.
Here are 4 things NOT to do when you put your finances on auto-pilot.
Do NOT Ignore Cash Flow
Before you can automate payments, you need to coordinate when your paycheck and other income will be deposited in your checking account. This should be obvious but it’s easy to mess up.
First, ensure you have a bit of a cash cushion in your checking account to start.
Next, call your billing companies and ask if they can bill you a few days after your paycheck is deposited. Once these two pillars are in place, then you can start automating bills and savings.
Do NOT Assume Your Income Stays the Same
Never assume your paycheck is the same every two weeks. Why? Because some pay periods are different and you could end up with either a surplus (not so bad) or a shortage of cash flow (bad).
This is really important if you have an irregular income due to sales …read more
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