Putting Your Finances on Auto Pilot

Question of the week:My employer is encouraging everyone to start receiving their paychecks through direct deposit. Call me old-fashioned, but I really like getting that check in my hands, and I'm not sure I trust the direct deposit technology. What do you think? --Geri G. Dear Geri, It's time to join the 21st century. A survey by the American Payroll Association found that more than half--56 percent--of all workers in the U.S. receive their pay through direct deposit. I strongly suspect that once you join their ranks, you'll never want to go back to paper checks again. For starters, you needn't worry about the technology. Banking statistics tell us that the chance of having a problem with a check is 20 times greater than with direct deposit. And the advantages of direct deposit are numerous: You'll get the money in your account sooner, won't have to ever worry about a check being lost or stolen, and won't have the hassle of waiting in line at the bank. Because it saves banks money, many offer free or low-cost checking when you have your pay directly deposited with them. And most employers will allow you to have your pay split up and deposited into more than one account, making it easy to set up a savings system. But perhaps the most compelling thing about direct deposit is how much it can help you begin to gain firm control over your financial life by automating your savings and spending. Members of the Armchair Millionaire community recently told us how this works for them: One check, many baskets. "My paycheck is deposited automatically and then divided into several areas. A fixed amount is deposited into several mutual funds for paying myself first and the rest goes to bills, my emergency account and for spending. All my spending is based on a preset, fixed amount, which ensures that my expenses are within the preset limit. Any excess is goes to my charity account." --Jonathan Like clockwork. "I have my paycheck deposited in my credit union checking account, but before I get my check, I have the maximum contribution withdrawn for my 401(k) account. Then every payday I pay off my credit card balances. I always put some money into my money market account, and try to maintain the equivalent of six months' take home pay in this account. As the money accumulates there, I move it to my Internet savings account to get higher interest without risking principal." --Elizabeth M. As you can see, directly depositing your paycheck is just a first step in a chain of events that will ensure your financial security. My guide will show you how to automate the rest of your financial life. The Armchair Millionaire Checklist for Putting Your Finances on Autopilot Direct deposit all your payments. Your paycheck is not the only payment that can be directly deposited. You can also have dividend and interest payments, annuities, pension payments, government benefit payments and tax refunds all made by direct deposit. Pay bills by automatic funds transfer. Chances are that every single company that bills you regularly--such as your utility, insurance and mortgage companies--allows you to have those bills paid by automatic withdrawals from your checking account. You'll never have to worry about paying bills on time again. Invest automatically. Having a portion of your take-home pay (I recommend 10 percent) automatically withdrawn from your checking account and deposited into an investment account once a month is the smartest, least painful way to save there is. That money will be gone before you have a chance to spend it and, by investing regularly, you'll take advantage of dollar cost averaging. Build an automatic portfolio. Tracking and regularly re-balancing a portfolio is not everyone's idea of fun. If you don't want to be bothered with it, choose mutual funds that will take care of the chore for you. Lifestyle funds maintain a specific mix of investments right for your age and risk tolerance, and thus are designed to be the only fund your need to hold in your portfolio. And index funds that cover the entire market are also available. THE BOTTOM LINE: You'll never become financially secure if you don't control your cash. One of the best ways to do this is to have the that paycheck sent straight to your checking account, and then doling out that cash automatically according to your needs and long-term goals.