How to automate your finances to save more and worry less

Imagine being calm and focused with your money, especially when life gets challenging. I call it monk money. It’s the idea of automating your finances and paying off stress-inducing bills while saving and investing—all on autopilot.

Right now, you may have piles of paper bills—utilities like heat and hydro, services like internet and cell phones, subscriptions like Netflix and Chef’s Plate and you’re losing track of when and how you paid bills. It’s a mess.

Let’s clean it up.

Here is the 7-step process to automate your finances and never worry about bills again.

Step 1: Make a list of all your creditors, bill collectors and anyone you pay money to regularly

The first step you should take to automate your finances is knowing where all your money is going every month.

• Go through your credit card and bank statements over the last 4-6 months.

• Don’t forget to check your phone to see when subscriptions expire and renew.

• If you have a budgeting app (e.g. Mint, YNAB), check for any other recurring expenses.

Next, there is a 50/30/20 budgeting rule where

• 50% goes to your needs. Your must-haves and obligatory spending like rent, groceries and utilities.

• 30% goes to your wants. Eating and drinking out with friends, tech gadgets, more plants.

• 20% goes to savings and investments. Vacation funds, emergency funds and retirement.

Remember this rule of thumb as you go through this exercise.

NOTE: While some creditors may bill annually, or quarterly, breaking this down by month simplifies the financial automation process.

Step 2: Add up all your bills, get an annual, then a monthly total

For easy math, let’s use $24,000 of total expenses per year as an example, or $2,000 per month, or $500 per week.

Now, because some bills can fluctuate, add some buffer room, say around 10%, to account for any discrepancies. For example, if you travelled, you’ll likely pay a little extra for your cell phone bill (or a pandemic hits forcing you to work from home and your electricity and water bills increase).

So, now we know how much to set aside for bills every month. For this example, we’re saying $550.

Step 3: Open a separate bank account for your paycheque

You likely already have a chequing account, but for this to work, you’ll need a completely separate account.

The KOHO account is the ideal option for this. There are no hidden fees, your paycheque earns up to 4,5% interest on any money left in the account, and up to 2% cash back on any spending you do on groceries and transportation.

Here’s how to set up a direct deposit for your paycheque with your employer with KOHO:

• Click the dollar sign ($) inside the app, choose "Set up direct deposit," then "Download the direct deposit void cheque."

• After that, request your payroll department to transfer your paycheque straight to your KOHO account.

• Ensure that the details on your direct deposit form are being used by your company. Your KOHO account's name and the payee name on the direct deposit must match.

Keep reading to learn how to do the rest!

Step 4: Make a list of all your suppliers, vendors, and services

Use the table from step 1 and contact each service provider to change the billing method.

Some providers want a void cheque, some accept credit cards and your new KOHO account gives you the best of both worlds—choose the payment method that incurs the lowest fees, either way you’re earning cash back while paying your vendors.

Some people recommend that while you’re reaching out to your providers, to see if you can get all your bills on the same schedule. You may have to deal with some odd billings, like pro-rated rates where you pay a little more upfront to get to the right date, but it all balances out in the end. However, with this method, when your paycheque hits your account, your immediately transferring money into your new “spend’ account. The idea is that you have enough money in that account to never worry about these bills. If you don’t have enough money, you’ll need to look for ways to cut back and save in areas.

READ: How to save like your grandparents

Check off, cross out or find anyway to keep track of who you’ve contacted and the dates they’ll start withdrawing from your new account.

You want autopay on each account. Stop worrying when bills are due when you’ve already accounted for this money. With a little buffer, you may have some money leftover at the end of the year. Bonus!

Congrats, you’re automating your bank account.

Step 5: Set up automatic transfers to your sinking, saving, and emergency funds and make your savings automagical

A sinking fund is a strategic way to save towards a specific purchase or event by setting aside a little each month.

While you might have a savings account for aspirational goals like a dream vacation, you use sinking funds towards recurring events that cost more money than you typically have lying around.

For example, end-of-year holidays like Diwali, Hannukah, Christmas, and New Year’s that can seriously strain your finances. A sinking fund is a place to put small amounts of money on a recurring basis so when this time of year rolls around, the money is available.

Other examples of sinking funds, include:

• Car maintenance. An oil change may only be $80, but when the mechanic calls to say your brakes also need replacing, it’ll be nice to have a stack of cash set aside to afford the $250-$1,000 cost.

• Home repairs. We’re not talking about a new IKEA Billy bookcase, but a leaky roof can cost thousands and much more the longer you avoid repairing it.

• Updated tech. Laptops, televisions, and phones aren’t typically purchases you make on whim. If you upgrade your mobile device every 2 years, $60 a month is much easier than a single $1,400 hit on your finances.

• Vacation destinations. The more you build these plans out, the more realistic your dreams become. How much money can you realistically save for vacations per month? Knowing that number helps you pick where you can afford to go on vacation.

• Emergency funds. Job loss? Critical illness? Even a high-cost traffic ticket can be an out of nowhere expense that’’ hurt your pocketbook. Setting up an emergency fund is a life-changing addition to your financial life. Knowing that you have 3-6 months of your expenses covered gives you extra confidence at work.

KOHO is one of the best personal finance automation tools because until this point, you can do with KOHO—all for free (while earning interest).

Step 6: It pays to automate your finances and invest early

There’s a saying that goes, “pay yourself first.” Well, I like “earn more, spend less and invest the rest.” Now that we’ve accounted for your paycheque, bills, spending goals, it’s time to invest the rest.

But that doesn’t mean you shouldn’t start investing until you’re debt free. The average annual return from the stock market is 7-10%, if your debts charge less, split the debt repayment and stock investments in half.

Investing works best the earlier you start because of compound interest—the phenomenon of earning interest on interest. For example, you deposit $1,000 into your investment account earning 10% annually, by the end of the year, you’ll earn $100 in interest. And now you’re earning interest in $1,100.

It pays to start automating your finances early. Let’s look at another example using Coast FIRE. Using the coast FIRE retirement savings approach, you can "coast" (stop investing money) until retirement if you accumulate enough savings and investments early in life.

So, if at age 20, you can save $492 per month, you can stop investing at 28 or 29 years old and have $2 million dollars in retirement.

Or, you can start at age 30 and need $500 a month, every month, until retirement.

If you start at age 40, investing $500 a month will only grow to $461,066, assuming a 10% rate of return.

You don’t need to know how the stock markets work.

You can get started with a roboadvisor like Wealthsimple or Quest wealth. All you need to do is fund the account.

READ: Anyone can invest like a pro

And if you’re ****unsure how much you can afford, try KOHO’s RoundUps feature that helps you save as you spend and automatically transfer money every day. For example, if you purchase a coffee for $2.50, RoundUps will put $0.50, $1.50, $2.50, or $7.50 into your savings automatically.

Then, you can cash out at the end of the month and deposit whatever money is there into your roboadvisor account and get started investing.

Step 7: Enjoy your rich life

With the bills paid for, saving and investing on autopilot, any money leftover is yours to use for whatever you like.

It may not be much at the start, but as you earn more money, you can use the extra to invest and reach retirement sooner, take more exotic vacations or undergo your dream renovation.

Is automating your finances an expensive mistake?

No, but there are people who will tell you not to automate your finances because it makes you lazy with your money.

Here’s how we’ll combat that: Review your automations at least once a year, if not more (e.g. quarterly, even monthly) and adjust accordingly. Here’s why:

• Inflation increases costs. Be sure you have enough money going into your spend account to leave a little extra and avoid overdraft fees.

• Salary increases can lead to lifestyle creep. Don’t let this happen. Prioritize working towards maxing out your TFSA, then your RRSP.

• Goals can change. Did you save $1,200 for the holidays and end up spending $2,000? Adjust to the extra amount. Respond to the changes you experience.

In summary, here’s how to automate your finances

1. Step up the account for your creditors to draw from.

2. Make a list of your vendors and suppliers, contact them and give them the account.

3. Contribute the amount you need to this account as soon as your paycheque is deposited

4. Use what’s left for savings and investments.

5. Regularly review your financials and stay on top of it.

Frequently asked questions about automating your finances

Should you automate your bills?

Automating your bills can be helpful if you’re organized and committed to monitoring your finances. You’ll never forget a due date thus minimizing the risk of late fees and dings on your credit score. Experts suggest using autopay for every one of your bills as long as you know you have the expected money in your checking account each month (to prevent any overdraft fees).

How do I automate my bank account?

You can automate your bank account by setting up pre-authorized transactions with your landlord, bank, utilities, suppliers and vendors. You should also setup automatic deposits for your savings and investment accounts. It’s simple to do with your KOHO account.

How do you automate a monthly budget?

You can automate your monthly budget using a tool like Mint, YNAB or even building your own spreadsheet. Create columns for income and expenses, input your numbers and use formulas for where you should allocate your money. From there, set up an account for your creditors to pull from and automatically transfer a portion of your paycheque to fund that account.

Is automating savings a good idea?

It helps you pay off your bills and save money without having to think about it helping to reach your savings goals faster. However, review your bank account and statements regularly to stay on top of your transactions. Always make sure you have enough money in the account to cover all the bills and other expenses from your various providers.