Because you’re reading this, I’d say there’s a good chance that you’ve already heard all about the benefits of automating your finances. In which case, I don’t need to tell you that establishing an automated personal finance system is an easy way to simplify and manage your money.
You’ve also acknowledged that despite your Einstein-level math skills, you’re bound to make a silly math mistake or forget a payment due date at some point. But you know the robots won’t.
And you know that automating your finances can help set you up to do the right thing over and over. Save more money. Pay your bills on time. Contribute a portion of each paycheck to your Roth IRA. Just tell the robots what to do and they’ll take care of it!
Yeah, I’m sure you’ve heard it all before. And not only that, but you’re probably one of those rare action-takers who’s gone out and actually set up a bulletproof personal finance system. After some initial effort to get everything set up, you have a system in place and you’re dominating your finances like never before.
But be careful. Once you have your system in place it’s easy to just set things to cruise control and stop paying attention. Don’t do that!
Automating your finances doesn’t mean you don’t ever have to think about your system again.
Yeah, those robots are pretty amazing. But that doesn’t mean you should put them in charge and suddenly stop paying attention to your finances.
After all, there are things you can do that those robots can’t – like think creatively, analyze monthly statements, and use that information to make intelligent decisions to improve your financial habits and strategies.
If you take a set-it-and-forget-it approach, you could be missing obvious ways to improve your finances. In fact, you might even begin developing bad habits without ever realizing it.
That’s why you should check in on your accounts periodically.
It might seem like things are running smoothly, but that doesn’t mean there isn’t room for improvement. Plus, one of the best ways to catch minor issues before they grow into bigger problems is to perform periodic scheduled maintenance. And if there’s nothing wrong? Well, at least you have the peace of mind that comes with knowing that things are headed the right direction.
With that in mind, here are a few things you should keep an eye on even after you’ve created a well-designed personal finance system.
1. Keep Recurring Subscriptions Under Control
Recurring subscriptions are a double-edged sword. Setting up recurring charges acts as a safety net in case you lose track of a payment due date. But that can also cause people to grow accustomed to monthly withdrawals from their account to the point that they stop paying attention to how much is coming out, where it’s going, or if they are getting what they paid for.
Can you name every subscription service that you pay for on a recurring basis? The reality is, most people probably have a monthly charge or two that they forget about until they look at their credit card statement.
But that’s the problem; the average person doesn’t look at their credit card statement each month (see #2 below).
These days, you can get a subscription for just about anything. Most of us probably have the basics: car insurance, a gym membership, Amazon Prime, and maybe even an Audible or Netflix subscription (not to mention other basics like Internet, water, and electric). But what about those non-essential services that we no longer use or those promotional offers that we signed up for and forget to cancel?
Why are you paying $9.99 for that box of personalized makeup, haircare and skincare samples each month? And why the heck is Experian charging you for monthly credit monitoring when all you wanted was your free credit report? And didn’t you cancel that Blue Apron subscription after the free trial ended?
Make sure you keep an eye on your subscriptions. Automating payments for monthly subscriptions can offer peace of mind, but it’s only worth it if your money is going toward products and services that you actually want and use.
Scheduled Maintenance: Every 1-2 months
2. Review Monthly Credit Card Statements
It can be easy to stop paying attention to your monthly credit card statements once you’ve set up recurring payments. But that would be a mistake for several reasons. First of all, how will you know if you’ve been charged correctly? Billing mistakes happen more than most people realize.
Over the years, I’ve caught a few mistakes. Retailers have failed to credit my account after a return. I’ve been double charged. I’ve spotted transactions that simply didn’t belong. On several occasions, companies have continued charging my account after I cancelled a subscription or membership. And one time, a server added an extra zero to a tip – oops!
In most cases the companies or employees won’t catch their mistake. It’s up to you. And even if it’s just a few dollars, it can really add up.
Here’s one more reason to keep an eye on your monthly statements (and it’s far more important than those erroneous charges):
Track your spending habits.
Everyone talks about how it’s so much easier to spend frivolously when using a credit or debit card instead of cash. People say it’s easier to spend when we don’t feel the pain of the money leaving our hand. That makes sense, but I think there’s more to it than that.
I think part of the problem is that we start thinking as long as we pay our credit card balance each month, our spending isn’t an issue. I’ve certainly fallen into that trap before.
I autopay my credit card balance in full each month. That makes it possible for me to make a purchase and never have to think about it again. At the end of the billing cycle, the payment is made and I never have to acknowledge that I spent $78.52 at Chipotle in July. As long as I have enough money to pay off my balance, my burrito spending must be under control, right?
That’s a surefire way to develop bad habits.
Even the most careful and conscious spenders can benefit from reviewing their monthly statements. Revisit each transaction. Look for spending patterns. And ask yourself whether those purchases were really worth it. I know that my perspective to spending really changed when I started looking at all the purchases I made over the course of each month. You might be surprised too.
Scheduled Maintenance: Monthly
3. Rebalance Assets and/or Adjust Asset Allocation
Over time, your investment portfolio balance is going to change. It will happen whether you want it to or not. That’s because some of your investments will do well, while others won’t. Those investments that have done well will hold a larger position in your overall portfolio. Conversely, those that haven’t done as well will take up less of your portfolio.
If your investment goal hasn’t changed, your portfolio’s target allocation shouldn’t have changed either. That’s why you want to make sure you’re rebalancing assets or adjusting asset allocation as you approach specific life events (e.g., retirement, home purchase, etc.).
Related: Rebalancing your portfolio may sound more complicated than it really is. Check out Darian’s recent post here to learn more.
Making automatic contributions to retirement accounts is great. But if you don’t check in on your investments periodically, an imbalance will form and you won’t be able to manage risk or reap the rewards of full diversification like you want.
Don’t just set your investment contributions to auto-pilot and wait to check in on things when you are approaching retirement. Protect your gains and benefit from changing in the market by at least checking if it’s time to rebalance every three to six months.
Scheduled Maintenance: Every 3-6 months
4. Always Look for Ways to Save Money
When I first graduated law school, I was eager to start paying off my mountain of student loans as fast as I could. Like most people, I couldn’t wait for payday every two weeks. But in my case, I was excited to be able to cut a check to my loan servicer to cover my scheduled payment along with a little extra that would help chip away at the outstanding principal balance.
I was so laser-focused on accelerating my debt paydown that I overlooked obvious ways to save money. The first thing I should’ve done was take advantage of my loan servicers 0.25% rate discount by setting up auto payments. And mistake #2: I should’ve been shopping for a lower interest rate before my first payment was ever due. Instead, I waited several months before I looked into refinancing into a lower rate. Huge mistake!
Don’t do what I did. Don’t be content with setting up recurring payments and knowing that you’ll eventually pay off your debt. Even if you’re throwing extra spare dollar at the debt, there are other ways to save money that will augment your aggressive debt paydown. Whether you’re dealing with student loans, credit card debt, or a mortgage – it’s well worth it to look into refinancing options.
Scheduled Maintenance: This is something that you only need to do once or twice during the life of the loan. It depends on a variety of factors including the term of the loan, market conditions and interest rates, your financial position, and any fees to refinance (or make a balance transfer in the case of a credit card).
A Few Final Thoughts
Setting up an automated personal finance system is a great way to execute your financial strategy over and over. But a poorly implemented automation strategy or one that doesn’t include periodic attention and maintenance can lead to repeated mistakes and wasted money. Those robots can really help get your overall finances on the right track but that doesn’t mean you have to act like a robot yourself!
Set aside some time each month to look for ways to improve your spending, saving, and investing strategies. It only takes an hour or so each month to make sure you’re making the most of your money. To me, that seems like time well spent!