What does it mean to automate your finances and how to start?
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Did you know that 30% of Canadians cite financial stress as a larger worry than their overall health? But managing your money doesn’t have to be a headache! In this article, we share eight simple strategies to automate your finances and grow your wealth, as well as some easy tips on how to get started.
Pay yourself first technique
Financial writer David Bach popularized the concept of “paying yourself first” in his book, The Automatic Millionaire. It means treating yourself like a bill and routing a specific portion of your income to a designated account before making any other expenses.
Since you are moving cash directly from your paycheque into your savings or investing account, you’re considered to be “paying yourself first.” So you’re stocking your accounts before paying off other monthly expenses – like your mortgage and utilities.
Experts like David Bach express that the “pay yourself first” technique is an excellent way to make regular savings payments to yourself every month. Since it’s automatic, your urge to neglect a “payment” is lower. You may not even notice the missing money!
Should you decide to pay yourself first, think beyond socking cash away in a chequing or savings account. For example, “pay yourself first” can mean funding a TSFA or RRSP investing account. It can also mean putting money away to achieve a financial goal: from building an emergency fund to saving for retirement to saving for a down payment on a home.
Wherever you decide to park your cash, paying yourself first is a great way to build wealth in the long run. Timely and constant contributions to your savings go an exceptionally long way in building your long-term nest egg. A lot of personal finance experts even consider this approach the golden rule of personal finance.
Ways to automate your investment portfolio
Now that you know the importance of paying yourself first, consider putting aside a chunk of change and setting up an automatic deposit into an investment account. There are a few easy ways to automate your investment portfolio:
Set up automatic deposits
Nearly all online brokers and robo advisors in Canada make it super easy to invest automatically on a regular basis (monthly, bi-weekly, weekly – whatever works!). Here’s how this works:
First, schedule an automated, recurring transfer out of your bank account directly into your investment account.
Next, you’ll indicate how you want those funds distributed. For instance, a certain amount could go right into a specific index fund. On the other hand, if you’re using a robo-advisor, it should disperse the funds for you automatically (a lot better!).
Additionally, several robo-advisors, including Wealthsimple or Nest Wealth, allow you to schedule automatic deposits into your investment account without any additional fees. With a robo advisor like Wealthsimple (our top choice), you can set up a bi-monthly, month-to-month, or per-week program to deposit money. Then you just sit back and watch the money pile grow!Get started with Wealthsimple
Or to keep automatic investing low-cost, invest directly with a discount brokerage to avoid paying a hefty trade commission. Try out one of our absolute favourite discount brokerages, Questrade.Start investing with Questrade
Sign up For overflow by Wealthsimple
If you want to turbocharge your savings, consider getting Overflow by Wealthsimple. A fantastic, (and free) feature, Overflow automatically invests excess money from your bank account into a Wealthsimple Invest or Save account. All you have to do is set an amount of cash you want to keep in your chequing account. Once a month, any money on top of that amount will be automatically deposited into your Wealthsimple Invest or Save account. After the initial setup, you never have to lift a finger. Brilliant!Start investing with Wealthsimple
Use an app
If you need a nudge, you can also try using an automatic saving app like Moka (formerly Mylo). It’s an ingenious solution to putting your loose virtual change to work for you: just install the app on your phone and every time you make a purchase, it rounds up to the nearest dollar and invests the change. Or if you like the idea of being more hands-on with your budget tracking, utilize a tool like You Need A Budget to link up your bank accounts and monitor your spending. You can try the app for free for one month, and according to YNAB’s data, new budgeters save on average $600 by month two and more than $6,000 their first year. That’s extra cash you can re-route right to your investing account.
Increase your automated deposits over time
Another savvy saving strategy? Increase your automated deposits over time. Called “automatic escalation,” this involves automatically increasing your savings rate each year. It also might require a little work on your part, depending on where savings are going. Quite a few online investment platforms will enable you to increase your recurring contributions on an annual basis. This is also true for online-only banks.
If this type of feature isn’t available, I recommend adding an annual reminder to your calendar, detailing instructions on how much you’ll increase your savings. The primary benefit of automated escalation is that it inhibits “lifestyle creep” that frequently takes place with a growing salary.
Consolidate your bank accounts
Here’s a shocker: a recent study suggests that preserving your cash within one account might help you save some big bucks. Study participants with access to only a single account spent almost 10 percent less than people with multiple accounts. The researchers even did three more follow-up studies, and the results were similar: having fewer accounts has a pay-off.
Why is this? If you have many different accounts, it can be tricky to track how much money flows in and out, leading your spending to get out of whack. The study I referenced above even calls this the “fuzzy-trace theory” because of how fuzzy your mind gets.
To clarify, we’re not saying to get rid of all but one of your bank accounts. For many Canadians, keeping several accounts may make budgeting a heck of a lot easier, and having both a chequing and high-interest savings account makes good financial sense. The takeaway here is that, on average, people save more when designating their spending to one money pot.
Scotiabank preferred package
Therefore, if you are using multiple bank accounts for your everyday spending, move that money into one chequing account and spend from there. For the best chequing accounts in Canada, our top pick is the Scotiabank Preferred Package account. It’s actually a rewards chequing account, which is a rarity in the banking world. This chequing account also comes with unlimited debit transactions² Interac e-Transfer† transactions.
² Conditions apply. Visit www.scotiabank.com/ultimate300 to learn more.
Get going with direct deposit
For many busy, working people on the go, it’s far too easy to misplace a cheque or even forget to cash it altogether. Why not cut out the hassle and just have your cheques deposited directly into your chequing account? This is called direct deposit, and it’s a payment made electronically from one financial institution to another.
The most common example is when you get your paycheque deposited into your bank account, but it can apply to other things like your tax refund or the Canada Child Benefit. Why wait for Canada Post to deliver the cheque to your mailbox when the moolah can virtually drop into your account in an instant?
To make transfers in Canada, banks use what’s referred to as the Electronic Fund Transfer (EFT) network. This unique network coordinates these payments among all Canadian banking institutions. To set up electronic payment, just provide your bank account details to the institution sending the money. Usually, you’ll need to provide either a void cheque, a direct deposit form, or some other type of authorization from your financial institution.
Streamline your bills
Believe it or not, streamlining your bills can relieve a lot of money stress, and goes a long way when automating your finances. Here are some savvy strategies to try:
Pay your bills by using a credit card
A lot of people pay their bills with a credit card. How this works: with each company (e.g. mobile phone, utility provider, cable, etc.), you can set up pre-authorized payments directly to your credit cards so that you never miss a payment. In doing so, you can not only sit back and relax, but also benefit from great incentives like cash back or travel rewards.
Apply for a Tangerine Money-Back Credit Card by October 31, 2023. If you're approved, you’ll earn an extra 10% back on up to $1,000 in everyday purchases made within your first 2 months.*
Paying all your bills with a credit card makes it easier to manage everything, and there are some big benefits to having the right credit card. For instance, recurring bill payments count as one of the eligible 2% cash-back categories eligible for the Tangerine Money-Back Credit Card. Here’s how it works: you get 2% cash back on two eligible Tangerine spending categories (which you choose), plus get a third when you have your Money-Back Rewards deposited into your Tangerine Savings Account. Everything else charged to the card gets you 0.5% cashback.
Promo: Special 10% extra cash back rate on the first $1,000 spent with the card on everyday purchases (max. $100 cash back) in the first two months if you're approved, apply by October 31, 2023.*
Aside from the cashback benefits, another great thing about setting up recurring bill payments is that you don’t need to worry about due days – it’s all paid for you on a schedule. Instead, you just pay the one credit card bill each month that includes all your other bills. Of course, you’ll need to exercise the self-discipline to pay the credit card bill in full every month – otherwise, this won’t do you much good.Learn more about Tangerine Bank
*Terms and conditions apply
There are companies (e.g. Amazon Prime) that let you pay annually for their services, and some will even offer a discount or special pricing for annual payments. Taking advantage of this not only cuts down on juggling bill payments but can lower your overall expenses. The bottom line? Paying annually can make the bill-paying process a heck of a lot easier. Plus, you’ll be amazed at how much time and money you’ll end up saving.
Automate your budget
An automated budget is one of the most effective ways to take to boost your savings. It forces you to examine your money habits and alerts you if your spending goes awry. The numbers don’t lie!
But managing a budget manually can be time-consuming and aggravating. Luckily, it’s, 2019 and there are apps to help make this a cinch. I absolutely love an app called Albert — it takes the hassle out of categorizing everything and instead automates the process to suit your needs. Since it’s free to try, you can basically check it out risk-free. After that, it’s a few bucks a month to get personalized guidance. Honestly, the worst thing that can happen is you download an app that doesn’t work for your situation. In that case, just delete it and find a different one. (On that note, Cleo is another app that I’ve also really liked). There’s also YNAB, which we’ve mentioned above.
Automate your credit score monitoring
Every Canadian should be concerned about their credit score because your number affects so many aspects of your financial life: from securing a personal loan to the interest rates that you’re charged to getting approved for one of the best credit cards in Canada. Even if you’re debt-free, you should still care about your credit rating. For instance, if you’re thinking of purchasing a house or starting up a business, having poor credit can jeopardize your chances of getting approved by a lender. For these reasons, monitoring your credit score should be part of automating your finances.
That being said, it’s not impossible to get a personal loan with bad credit. You can apply with a bad credit lender, and there are several reputable ones in Canada. For the best of the bunch, check out our article on The Best Bad Credit Loans in Canada.
Luckily, there are some fantastic apps that will help monitor your credit rating, as well as offer advice on how to improve your score. Some can even help you challenge any black marks on your credit history. You can even get a free credit score check with the Canadian financial technology company Borrowell, and looking it up won’t affect your credit score.
I’ve been using an app to monitor my credit standing and their ideas on how to boost my score were invaluable when I went to get a mortgage last month. Simple strategies like lowering your debt utilization ratio, getting credit limit increases, or paying down personal debt can go a long way toward boosting your number. Using an app like Borrowell is a great way to automatically keep your credit score in check.
Overall, automating your money takes a little work up front, but ultimately, it has a big payoff down the line. Start small by implementing some of the savvy strategies that I’ve outlined above, and you’ll be on a hassle-free path to growing your wealth in no time.