By BOB CUNNINGHAM
My son is the worst about it of anyone I know. You’d think that, being his old man writes about smart money management on a regular basis, he would be averse to such bad habits. Nope. Instead, he swipes or inserts his debit card to pay for things… and whatever balance his bank shows in his account at any given time – if and when he bothers to check – must be correct.
This folks, is referred to as money management on auto-pilot. It’s not recommended.
In a neo-technical society, automation can be a great thing. Banking apps are all the rage – just snap a photo of the check you want to deposit, complete a couple of clicks, and just like that you have made a deposit. No need to venture out and walk up to an ATM, deal with a drive-thru, or (perish the very thought of it!) stand in line inside a branch.
But often, people confuse utilizing modern-day tools to assist noble efforts with a hands-off approach that, quite honestly, is just begging for problems.
You need to be on top of your money, gang.
So here is a quick breakdown of how you can utilize automation to your benefit, and what you should be willing to take the extra time required to do just to make sure you really are engaging in intelligent money management.
Use on-line banking…
Why wouldn’t you? Like the trash-talking big guy proclaimed in the film, White Men Can’t Jump, to explain his sudden departure from the basketball court in the middle of a 2-on-2 tournament game he and his partner were dominating, “This is too easy!”
On-line banking allows you to quickly check your balance, see transactions, and the Bill-Paying feature lets you set up recurring payments on bills which are the same amount every month, such as your mortgage and car payments. You can also sign up directly with the vendor to get regular alerts for how much your bill is and when it’s due (ideal for utilities, for instance), go to your bill-pay page, and authorize payment in less than 30 seconds.
… But monitor it regularly
I go to my bank’s on-line site at least 3-4 times per week. No, it isn’t because I’m obsessed with seeing a large balance. Trust me, that isn’t applicable… not because my wife and I are poor – we’re doing fine – but because my regular bank account is used for paying bills and everyday expenses. The bulk of our assets are located elsewhere, where they can earn a respectable rate of return.
I go there because I want to safeguard against two things – errors and oversights. Errors are when someone charges you erroneously, or there is an error on the bank’s end (very rare, I have found). Oversights are when it’s my fault – a charge I didn’t remember to account for, or perhaps a subscription auto-renew that I forgot about or didn’t want.
Simply put, I want to make sure the amount of money shown in our account is what should be shown. Typically, the quicker mistakes are discovered, the easier they are to remedy.
Have your paychecks direct-deposited…
Many banks offer small incentives for agreeing to have your paychecks directly deposited regularly. The perks can be fee-free basic accounts, discounts on loan rates, small cash-back considerations, even tangible gifts. Nothing cozier than watching TV draped in a blanket with “Bank of Cucamonga” emblazoned.
Yeah, I’m kidding about the blanket. Still, it is more convenient not to have to worry about physically possessing your check, getting to the bank to deposit it or cash it, etc.
…But know what’s being withheld from your net pay and why.
Don’t trust your employer with getting it right. Be sure you concur with what is being withheld, how many hours you were credited with working, even the pay rate itself. My other son recently took a new job, only to find out that he was being paid 75 cents an hour less than he thought he was promised. And of course, he didn’t notice this until about a month in, making a correction (and retroactive reimbursement) more difficult to request and obtain.
Pay Yourself First: Have money from your check sent directly to an investment account…
One of the oldest adages in personal finance, discussed numerous times on this site. “Pay yourself first” means that you set aside funds for savings before you pay any bills or cover any other expenses. It assures you save, regardless of circumstances, which is especially critical when you are first starting out and have the maximum time to take advantage of the amazing principle of compound interest.
…And monitor your balance to assure full credit and growth
Again, don’t trust that the powers that be will get everything right. I once had a life insurance policy, for which I sent in a contribution toward what is referred to as a “payed-up additions rider,” which allows for growing your cash value more quickly provided you stay within certain parameters. The insurance company mistakenly credited the payment toward a small policy loan balance I had, that I had just taken and wasn’t yet willing to pay on.
The error wasn’t a big deal, and was easily corrected by the company, but had I not caught it, it would have ultimately cost me money in the form of lost compounding on the funds which never would have reached my desired destination.
By all means, utilize the great modern technology available to us whenever you can, and it makes sense to you. But whether you go old-school or new-tool, be “accountable” every step of the way. Pun intended.
Thanks, as always, for reading.
DISCLAIMER: This post represents the author’s opinions only. In no way should any part of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific company or investment. Results are never guaranteed. Utilize the information as you see fit, make all money decisions at your own risk.