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The Hazards of Financial Automation

Posted By Jim On 06/01/2011 @ 2:16 pm In Personal Finance | 18 Comments

Everyone loves automation. It’s the cornerstone idea of David Bach’s Automatic Millionaire [3], the idea that if you make saving automatic, you’ll retire rich (an idea I subscribe to). By automating good behavior, you take human nature out of it. It prevents you from hurting yourself.

In my desire to simplify my finances, I’ve automated a lot of our financial “processes.” Our mortgage payments are auto-debited from our checking account. Our auto insurance and homeowners insurance is automatically billed to my credit card. Even our credit card payments are made in full automatically. It’s a great system that requires only a little maintenance each month (mostly reviewing credit card statements).

There are, however, risks to automating too much. Automation works well when you’re just doing the same thing over and over again. Our mortgage payment doesn’t change (it gets adjusted once a year to account for property tax increases and the like), so automatically debiting the regular monthly payment makes sense.

The riskiest automation we use is in paying our credit card bills. Our bills are fairly steady each month but the risk is that we don’t catch fraud fast enough. I used to use the email notifications as my reminder to go into my account, review the statement, and pay the bill. Nowadays, the emails just remind me to review the statement. It would be easy for me, during a busy day, decide not to review the statement and not pick up fraud until it was too late.

Credit card fraud protections are pretty good but some card issuers consider payment to be acceptance of all the charges.

Automation also breeds laziness. If I have to pay the credit card bill each month, that’s at least one moment in which I’m thinking about how much we’re spending each month. It may seem inconsequential but it’s important to check in and review your finances regularly. Reviewing a credit card statement is as good a time as any.

I’m all for automation and simplification, just be aware that there are risks associated with making things too easy.


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[3] David Bach’s Automatic Millionaire: http://www.amazon.com/Automatic-Millionaire-Powerful-One-Step-Finish/dp/0767914104

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