A bank with modern banking tools should offer a robust set of online amenities, including bill-pay services and the ability to set up automatic transfers to accounts at other financial institutions. (Getty Images)
Budgeting is an incredibly powerful personal finance strategy. Sitting down, figuring out where all your money is going and where it should go is enormously valuable. It shows you a clear picture of what you should be doing with your money.
The challenge is maintaining that momentum once you’ve assembled your first budget. Doing it again month after month is a real hurdle, as it requires a lot of time and attention to assemble a budget that doesn’t change much every month. So many people decide to skip budgeting this month … and next month … and soon you’re right back where you started.
The solution, of course, is to find a way to take most of the repetitive work out of budgeting, leaving only the relevant decisions such as how to keep your grocery spending within $500 a month.
How does one do that? Just use the online tools from your bank.
Online banking and automatic transfers make the practice of budgeting easier. They make it possible to keep your bills paid and move forward with your savings goals without lifting a finger. The only work you have to do is to determine how to allocate the money necessary for flexible spending (food, entertainment and so on) during the month.
Here’s how to get started.
If your bank doesn’t have online banking options, consider a different bank. A bank with modern banking options in 2018 should offer a robust set of online banking amenities, including bill-pay services and the ability to set up automatic transfers to savings accounts and accounts at other financial institutions.
If your bank doesn’t do this or makes it prohibitively difficult, consider moving your primary banking to another bank. Those tools make it possible to effectively budget automatically and manage your money efficiently.
Try setting it up to pay your bills automatically, with an understanding that you should check up on this occasionally. If you do this, your bank will automatically pay your bills as they’re due or on the day of the month you suggest, depending on which option you choose. After that, you don’t have to worry about those bills anymore. They’re paid in full.
This is particularly useful for bills that are roughly the same amount every month such as your internet bill or debt payments. If you have a little breathing room in your spending, you can use this for all bills, including more variable ones such as your energy bill. Aim to have all of your bills paid automatically shortly after each pay period, so you know that the money left behind in your checking account is money you can freely spend.
Set up an automatic savings plan to build an emergency fund. Another valuable use of automatic transfers is to set up a constantly refilling emergency fund. An emergency fund is a pool of money you can tap whenever there’s a financial challenge in your life. If you set up a regular automatic transfer from your checking to your savings account, your savings can become that emergency fund. It fills itself slowly and constantly over time, and you never have to lift a finger.
Just set up a small weekly transfer from your checking to your savings account – say, $20 –then forget about your savings account. When an emergency happens, take money out of your savings account to cover that big unexpected expense. You don’t have to do anything else. The automatic transfer will keep refilling it.
Figure out how much you want to pay every month for each of your debts and automate that, too. What if you want to pay down a debt quickly? Simply figure out how much of an extra payment you wish to make each month, then set up an automatic payment in that amount on an appropriate date each month (likely just after you’re paid). That way, you can start paying down that debt rapidly and get it out of the way.
The advantage of making an extra payment automatically is that leaving it in place becomes the easiest route. If you do it manually, the easiest route is to not make the payment, and that’s why people often slow down or stop making extra payments on their debts. If you make it automatic, the easiest route is to let that payment happen, so you’re much more likely to stick with it.
Be smart with the remaining money. If you set up these automatic payments, the money left behind in your checking account is the money you’ll use for expenses such as food and entertainment. That’s where frugality and smart choices come in. You’re left with just the money you’re going to use for your incidental purchases, so you need to start applying lots of frugal tactics to make that money stretch a little. Start buying store-brand versions of household products, for example, and start eating at home more often. When you begin making frugal choices with the money that remains, you’ll see how big of an impact it really has.