Pros and Cons of Automating Your Personal Finances

automating your personal finances

Wouldn’t it be great if you could pass off all your personal financial management to someone else, effectively freeing up more time to spend on activities you truly enjoy?

Thanks to the rapid development and diffusion of artificial intelligence and machine-assisted technologies, it’s already possible to leave much of your financial planning in the hands of super-intelligent algorithms – if you would want to.

After all, Netflix’s fictional Black Mirror series about the terrifying wonders of futuristic technology isn’t too far from reality when you consider the real and potential consequences of integrating tech into almost every aspect of our lives. If you’d like to automate your finances to free up more time and minimize stress over missing payment deadlines, you’ll want to consider the following pros and cons before letting robots and algorithms take control over your wallet.

Pros and Cons of Automating Your Personal Finances

Pro: Never Miss Another Payment

A major reason why consumers are flocking to automated finance apps and websites involves the peace-of-mind you get from knowing that you won’t miss a deadline for a credit card, loan, or bill payment. Unless you have reminders in your calendar, there’s always a risk of forgetting about an impending payment deadline. Setting up auto-payments can help alleviate this stress.

Auto-pay features are perfect for anyone who wants to protect their credit scores because one of the biggest influences over your credit score is your history of making on-time bill payments. If a credit card company, loan provider, or other bill collector ever reports a late payment to the three major credit bureaus, you could expect to see your credit score drop for a little while. The ability to activate the auto-pay feature is a quick and easy solution for this potentially huge problem for consumers.

Con: Risk of Overdraft Fees

What happens if all your credit cards, loans, and other bills are set to auto-pay, but you don’t have enough money in your checking account when the automated payments are withdrawn from your account? In many cases, you can expect to be hit with an overdraft fee ranging from $20 to $35+ for many banks.

Fortunately, there are ways around this. You can set up email/text notifications about low checking account balances. Or open a $0 overdraft checking account like Chime.

You can also set auto-payments to withdraw from your account three-to-four days after your typical pay date. Finally, make sure to manually check your account balances at least two-to-three times per month, or set up weekly email updates to tell you how much you have available.

Pro: Greater Accountability for Savings

Another advantage to automating your personal finances is the ability to trick yourself into saving more money. For instance, you could choose to have part of your paycheck automatically diverted to your savings account.

Or, connect your debit/credit cards to the Acorns app, which will round up your purchases and deposit the spare change into an investment account.

Automatically saving money is particularly useful when it comes to preparing for retirement. For instance, robo advisors like Betterment let you set up regular deposits from your checking account into your IRA.

Studies have shown that consumers are less likely to deposit as much money into savings when they manually manage their finances. So, this is the best way to hold yourself accountable when it comes to saving for retirement.

Con: Opportunity Costs

When you automate your bill payments and deposits into savings/retirement accounts, you may be missing out on better opportunities to allocate your funds in optimal ways. For instance, setting up the same, recurring payment amount on all your credit cards and loans means you won’t be able to prioritize paying off high-interest debt as easily. This also means you’ll be paying more in interest over the long run.

By auto-depositing into various savings and retirement accounts, it can also enable laziness on your part when it comes to periodically assessing your returns and determining whether there are opportunities for higher returns on investment elsewhere.

Pro: Save Time and Effort for Things That Matter

While you may not be maximizing your returns at all times, automated personal finances can still free up more time for you to spend on activities you enjoy doing. This saves you from spending several hours each month on budgeting, reviewing card statements, and manually submitting payments.

Of course, you should still check in with your financial situation at least once per month, no matter how automated your processes have become. That way you can make sure everything is still on track. Algorithms aren’t perfect, after all.

Con: Risk of Impulsive Spending

A final concern consumers should have about personal finance automation is the risk of spending more impulsively. For instance, having your credit card information conveniently stored in your phone or web browser allows you to auto-fill your payment information for online purchases with the click of a button.

This ease of access, as opposed to locating your credit card and manually typing out the information, can subtly encourage you to spend more because there are fewer obstacles in your way.

Should You Fully Automate Your Finances?

In the near future, it may very well be possible to automate 95-100% of your personal finances, but should you?

A blended approach that incorporates financial technologies while still manually managing the most important aspects of your financial situation is likely the best path forward for consumers who want to balance the convenience of technology with the accountability of personal management.

Automating Your Personal Finances

Leave a Comment