Should you automate your finances like Ramit Sethi says or should you unautomate your finances like Adam Baker says? I don’t know. Here’s a discussion on Freedom from Broke on the matter. The answer is : either, or, or something in between.

Either, or, or something in between. That’s clearly a professional way to answer 😀

All I know is that a lot of money can be made by telling people either way 😉

Yeah, I’m just jealous.

However, consider that companies have spent a lot of money to get their customers to automate their payments. It stands to reason that companies would not spend millions of advertising money unless they can make money (most likely from people not canceling their services because it is convenient not to).

Automatically withdrawing your customers’ money with their consent provides a steady income stream for your company whether you are the cable company or an investment company.

It works for taxes too. How many people do you think would be as complacent about their taxes if instead of withdrawing their 10% state tax, their 8% social security tax, and their 25% federal tax, that is, approximately half their paycheck before they ever see the money and instead send a bill once a year which people had to pay with real money (not credit).

Hence, if we presume that companies serve “the average person”, then “the average person” DOES NOT benefit from automating their finances.

Automatization also allows for more things to go wrong. Suppose we have an automatic transfer from account #1 to account #2 which pays account #3. Now suppose the automatic transfer from #1 to #2 does not happen. Banks do screw up from time to time. Or perhaps your paycheck got delayed. Then #2 is underfunded for the #3 withdrawal. Both #2 and #3 slap a $20 fee on you. Meanwhile the money arrives in #1 one day later and the bank goes: “Who me?!”. This is the number one reason to stay far far away from automatic scheduling of ANYTHING THAT GOES OUT. If it is inbound, it’s another matter. This problem can be alleviated by keeping a cash buffer in all accounts. This has an opportunity cost for you—another win for the bank.

What about your average nonaverage (or is that unaverage?) person though? One of the things that makes a person average is that canceling services is inconvenient. The harder it is to cancel something, the less likely I am to cancel it. Even the act of canceling at all may have a higher psychic cost than paying $10. If someone has a short term focus, which I thankfully do not, it is easy to just repeat the mantra “I’ll do it next month”.

And companies know this.

Conversely, if something has a present cost, it may be optimal if you don’t have to swing the axe yourself.

Hence, my stance on whether to unautomate or ununautomate is to automate things which are are rationally good for your financial situation (like regular savings) and unautomate anything that is not good for your financial situation.

Much thanks to BS and ME for the $10 donation.

Originally posted 2010-07-03 10:22:12.