If you set up payments on autopilot, keep eye on controls

Automating financial tasks sounds like the perfect way to eliminate mundane items like saving and paying bills from your to-do list with minimal effort. But there’s a potential downside to giving up manual control.

When you automate bills, you may be less likely to review them and notice errors, or to catch yourself overspending. When you automate savings, you might forget to make adjustments as your goals or income change. As certified financial planner Catalina Franco-Cicero puts it, “Somebody has to make a decision, and it should be a human, not a machine.” That’s why she suggests using automation in conjunction with frequent reviews and updates.

Consider these strategies from financial experts:

First, review your cash flow

Ambus Hunter, an accredited financial counselor in the Baltimore area, encourages his clients to study their cash flow before setting up automatic payments. That means taking a close look at specific dates of those deposits and withdrawals.

“I don’t like haphazard automation. If you aren’t paying attention to cash flow and just set up a few withdrawals here and there, it can trip you up,” he says.

Start with bills that remain the same each month

The easiest bills to automate are the ones that don’t change: car payments, condo fees, phone and cable bills, and insurance payments, for example. You can reap benefits, such as avoiding late fees, says John Mason, CFP and president of Mason & Associates in Newport News, Virginia.

“I would draw the line at variable charges such as your water bill, electricity and credit cards, unless you’re disciplined enough to review those statements carefully even if they’re automated,” he says.

Ashli Smith, who lives in Atlanta and shares money tips through her Twitter handle @BadGirlFinances, automates bills that generate discounts for doing so. Many cellphone providers offer monthly discounts of $5 or more for using autopay, and insurance providers often offer similar discounts. Enrolling in autopay for student loans can give you a 0.25 percentage point interest rate reduction.

Smith notes that you can often select the day for the withdrawal to ensure it falls before the due date but after your paycheck is deposited to prevent overdrawing your account.

With credit cards, Smith notes that you can set up autopay for a certain amount to guarantee that you pay at least the minimum, then make additional payments throughout the billing cycle to lower your credit usage and help your credit score.

Automating a bill also doesn’t mean that you should stop shopping around for better options. Franco-Cicero, who is also a wealth adviser at Tobias Financial Advisors in Plantation, Florida, says that when it comes to car insurance, for example, it’s worth checking for discounts and comparing options each time your policy is up for renewal.

Automate savings, with manual tweaks

In addition to signing up to automate retirement contributions every paycheck, Mason suggests automatic savings for other goals. Every time he cuts costs to free up extra cash, he says, “I try to capture it immediately so it doesn’t get lost in the shuffle.”

Adrienne Taylor-Wells, an accredited financial counselor and founder of Tailored WealthSaver — a counseling firm in Houston — said, “I encourage clients to put the savings in a savings account in a separate bank so it’s harder to get that money and easier to save.”

Still, manual adjustments are often necessary. Taylor-Wells started off the year saving for laser eye surgery in August, and she created a spending plan to reflect that. But when her optometrist offered a $600 rebate for a 12-month supply of contacts, she opted to delay the surgery until January 2023, giving her more time to save and allowing more discretionary spending, too.