6 smart moves to save by automating your finances

Couple looking at computer screen

You're a good person. You get to work on time, go to parent-teacher conferences, remember your anniversary, feed the cat and get your flu shot.

You should still automate your good financial intentions.

Whether you're rebalancing stocks, paying bills or building your savings account, make the decision once and then put it on cruise control.

If you don't automate your good financial behavior, you're setting your finances on manual.

That means you're relying on memory and willpower to ensure that you'll make the same decisions -- not once, but month after month for years.

That's not a reliable way to build financial security.

Instead, use automatic tools at your disposal to help ensure the financial decisions you make are also the ones that stick.

There are six obvious, easy steps to take:

Smart move 1. Set up automatic deposits.

Don't take a paycheck in paper form and then set it on your desk at home for a week. Ask your employer or client to deposit the money directly into your bank account.

Time to set up: Maybe 10 minutes.
Headache avoided: Protect yourself against overdraft charges, start earning interest right away and never misplace a paper check again.

Smart move 2. Put retirement account contributions on autopilot.

Decide how much you'll have deducted from your pay every month, and tell your employer. Revisit the decision once a year, but don’t lower your contribution amount below the level that your employer will match. That's giving away free money.

Time to set up: About 10 minutes.
Headache avoided: You'll thank me when you retire.

Smart move 3. Pay your bills online.

My father was a university professor but a bit daft anytime he was out of the classroom. The telephone company sent him several notices threatening to cut off his telephone service when I was a child.

He had the money. He just couldn't remember to send it in on time every month.

That was in the dark days before the Internet. Nowadays, you can use online banking to arrange all your regular, set payments, from your mortgage to your car loan to your gym membership.

You can even give your credit card company and utility providers permission to deduct varying payments from your checking account.

That makes sense, though, only if you're willing to maintain a cash cushion in that checking account. Otherwise, varying withdrawals could leave you with bank overdraft charges, effectively trading one problem for another.

Time to set up: Somewhere between a few minutes and an hour or two, depending on how many bills you want to pay automatically.
Headache avoided: No more late fees, extra interest charges or threats to cancel credit or services.

Smart move 4. Move money to savings automatically.

You want to put a $20,000 down payment on a house in three years. Working backward, you know that you need to save $550 a month to reach your goal.

Call your bank or talk with your company's human resources department.

Your bank can automatically transfer $550 from your checking account to a savings account, money market account or certificate of deposit every month.

Your company might be happy to split your automatically deposited check in two and put part of your money in one account and part in another.

Time to set up: About 10 minutes.
Headache avoided: It's much easier to save money that's never linked to your checking account or debit card.

Smart move 5. Invest without having to think.

Don't rush to call your broker when you hear that a particular stock or mutual fund is hot. Decide how much money you can afford to put into bonds and equities every month, and then ask your brokerage to automatically deduct that money from your checking account.

This leverages a technique called dollar cost averaging.

By spending the same amount every month, you buy more shares when prices are low and fewer when prices are high. That lowers your cost basis for each share, on average, and helps you create a higher net portfolio return.

Time to set up: Five minutes.
Headache avoided: You get more bang for your buck and ensure that you actually make the investments you intend to make.

Smart move 6. Rebalance your investment accounts periodically.

You know you should rebalance your equity investment allocations, but it's just so tempting to let that winner ride and give the losers time to redeem themselves.

Don't. Tell your broker that you want to automatically rebalance your portfolio every so often, quantify the "every so often" and click "go."

Time to set up: Five minutes.
Headache avoided: When you automatically rebalance, you're much less likely to buy high and sell low. That helps your overall portfolio net a higher return.