Automation makes our lives easier in so many ways. We automate our meeting invites, our prescription refills, our Netflix subscription! Automation is also a powerful tool for our financial wellness.
At The Beans we believe automation works for three reasons: the behavioral power of defaults, pre-commitments, and removal of friction. What does all of this mean? Simply put, you make one awesome decision, and benefit from it forever into the future. Let’s dive in!
For Beans member Magahen, saving is at the top of her financial goals list. Magahen works in education and is a mother of four who wants to make this the school year where she builds her Essential Savings.
“My thing is trying to save. If I can get through the week and save $5, I feel like I won the gold sticker!”
Automation can really be the hero of Magahen’s financial journey. When we set it and forget it we are committing to an action and removing barriers to success. The money will “just go where it’s supposed to.”
Future You Thanks Present You
When we set up an automation our current self is making a commitment for our future self. This pre-commitment moves us one step closer to our financial goals without having to take action again and again. It is similar to signing a lease for an apartment. By signing the lease you commit to living at that apartment for the next year (or whatever the length of time). Yes, you or the landlord could break the lease, but that is not something that happens easily. Similarly, setting up monthly (or bimonthly) automatic savings contributions will position future Magahen to have a fully funded Essential Savings by the end of the school year.
Defaults make it easy for us to make great choices. They work because humans naturally prefer the status quo- we resist change! The definition of a default is a predetermined outcome a person gets under the status quo and the most prominent example is an automatic renewal. Think Netflix- once you sign up you are billed monthly and you don’t need to do anything unless you want to cancel or change your subscription. The same applies to your savings automation. Set it up once you start a new job, or in Magahen’s case, at the start of the school year, so it’s ready to go with that first paycheck.
Kicking Friction to the Curb
Ever notice that when a task is easy you need less motivation to do it? That is because there is little or no “friction”. Friction is an obstacle or hurdle that increases our effort or motivation needed to complete a task. Friction can slow us down and prevent us from reaching our financial goals (or reaching them in the timeframe we want). Thankfully, this is where automation shines. Automation removes the potential for friction. No monthly motivation needed!
Magahen is already automating the payment of her monthly bills (did we mention she’s a month ahead on her mortgage?) so her next step is to set up automatic contributions to her Essential Savings. She’s framing it as a payment to herself: “Paying myself. I like the idea of it’s a bill I’m going to pay myself.”
So, there you have it. Automation isn’t just for prescriptions and your TV fix- smash your financial goals by leveraging the power of automation. Experience better money + life balance and your future self will thank you.