Money Habits That Simplify Your Life

Why financial automation works

At times, managing your personal finances can feel like going to the doctor. You know those check-up appointments are important, yet they’re easy to put off, and part of you may even worry about what the results might reveal.

The advantage when it comes to managing your money is that there’s an easy way to alleviate some of that time pressure and anxiety: automation. When you automate your bill payments, you’re less likely to feel the stress of incurring late fees or missed payments along with the costly interest charges and penalties, especially when life gets busy.

But automation can help with more than managing your bills. It can also help you put a system in place to adopt more consistent financial habits. For instance, if you find you have a habit of spending more when you see the money in your account, setting up regular contributions to your TFSA or RRSP can help save you from that impulse, while helping you reach your financial goals faster.

Another often-overlooked benefit of automating routine financial tasks is that it can help reduce decision fatigue: the mental, emotional, and physical weariness that can set in after making hundreds, even thousands, of decisions daily. Financial automation helps to lighten the mental load.

Automatic payments

Setting up automatic bill payments (also called pre-authorized bill payments or pre-authorized debits) using your bank account or credit card can be a big time-saver. The ideal bills to automate are those with predictable amounts that you need to pay weekly, bi-weekly, or monthly, such as:

• Utilities
• Internet and cellphone
• Subscriptions and memberships
• Mortgage, rent, property tax
• Car loan
• Insurance

Automatic payments are easy and convenient, but you still need to keep an eye on your budgeting and balances.

Try to time your payments to coincide with your paycheques. If there’s not enough money in your bank account to cover your payments and withdrawals, you’ll face overdraft fees or non-sufficient funds (NSF) fees, which can quickly add up every day your account remains in the red.

If you’re concerned about overdrafts, check if your financial institution offers overdraft protection, available for a monthly or pay-per-use fee. Overdraft protection works like a loan that covers the amount you’re overdrawn. Just note, you’ll have to pay interest on any outstanding balance, which can be as high as 22%, on top of the overdraft protection fee.

If you set up automatic payments on a credit card instead of a bank account for things like your streaming subscriptions or a gym membership, just make sure to keep an eye on your balance. While automatic payments can help you take control of your finances, automatic payments that add to your debt can be detrimental. Ideally, you should pay the full balance every month to avoid paying interest, which can add up quickly given that many cards charge interest as high as 24.99%.

Automatic savings and transfers

You may have heard this money tip: Pay yourself first. It’s a powerful way to build wealth over time and benefit from the magic of compound growth (when you start earning interest on your interest).

An easy way to stick with this advice is to automate savings and transfers. Here are some pre-authorized debits that can help you build financial success:

• Emergency funds: Life happens—and it gets expensive fast. Having a financial buffer in a crisis can help you avoid relying on high-interest credit cards or loans. Try to save enough in a separate savings account to cover a few months of living expenses.
• Savings accounts: If you’re saving toward a goal—a dream vacation, a home down payment, a wedding—you could transfer part of each paycheque into a high-interest savings account.
• Registered savings accounts: You can automate contributions to a Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA), First Home Savings Account (FHSA), or other type of registered account. Just be careful not to put in more than your contribution limits, or you’ll incur penalties.

Keep this tip in mind: Don’t set your pre-authorized debit dates too close to your payment or contribution deadlines. It can take a few business days for the money to move from your bank account to its destination.

Calendar reminders

It makes a lot of sense to automate predictable weekly, bi-weekly, and monthly payments. But you might want to keep making larger, less frequent payments manually, to make sure you have sufficient funds in your account.

For expenses like annual insurance premiums, membership renewals, or loan payments, it’s smart to create calendar reminders to nudge yourself a few weeks in advance (how far ahead depends on the size of the payment).

Calendar reminders are also effective for:

• Tax deadlines (installments, tax returns, payments)
• Credit card payment due dates
• Registered account contributions, such as the RRSP deadline
• Regular credit score checks
• Reviewing your subscriptions
• Budgeting, financial planning, investment portfolio reviews
• Tracking incoming payments (paydays, government benefits, etc.)
• Big upcoming expenses, such as kids’ summer camps, travel, or tuition fees

Financial alerts

Alerts can help you stay on top of other financial aspects. Useful alerts to try:

• Bank notifications for things like low account balances, credit limit warnings, large purchases, large deposits (like paycheques), and recurring payment reminders 
• Price drop alerts for products you plan to buy
• Deal tracking for big-ticket items like flights and vacation packages
• Identity monitoring and fraud prevention, offered by banks and credit monitoring agencies (usually for a fee)

Automations for self-employed Canadians

Automations can help you manage your business finances, too. Consider using automations, calendar reminders, and alerts for:

• GST/HST installment payments
• Corporate tax deadlines
• Expense tracking
• Incoming payments
• Monitoring account balances for payroll
• Automatic transfers to savings accounts for taxes

Automate a little bit at a time

If you’re new to financial automation, start small—pick one or two monthly payments with predictable amounts, such as your internet and cellphone bills.

As you become more comfortable with automatic payments and monitoring your account balance, consider adding a few more.

Keep in mind, though, that automation doesn’t mean you can stop paying attention to your finances. Every month, check over your bills and credit card statements to make sure they’re accurate and see if your spending aligns with your budgeting.

If your budget allows, think about automating contributions to your TFSA, RRSP, or other long-term savings, too. You can start with small amounts—even $50 or $100 per month can really add up—and bump it up when you’re able. It’s all about building a system that works for you.

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