Legions of personal finance writers have written about the importance of automating your savings in order to save automatically. You know, without you actually having to log in to your bank account or write a check to do it. The big benefit of making your savings automatic is that it happens monthly or weekly or bi-weekly or however often you choose and you don’t have to lift a teeny tiny finger to do it. You can be sick in bed with the flu or on vacation in Jamaica and still be saving money (and increasing your net worth) if you have an automatic savings plan set up.
How to Increase Your Net Worth
Increasing your savings obviously can have many benefits; you can accumulate money to save up for a car or a down payment on a house, invest it, or just use it to beef up your emergency fund. However, if you are interested in increasing/improving your net worth (which is the total value of your assets minus the total value of your debts/liabilities), there is actually another variable that you can use automatic transfers for, and that is your debt repayment.
As I have mentioned in previous posts, the hubs and I have recently entered turbo mode on our debt repayment. We want to get rid of our student loans as soon as possible, and in order to do that we are speeding up our debt payoff using automatic payments.
Automatic Debt Payments
How does that work exactly? Well, our student loan payments are due once per month. But we get paid every two weeks. So we make a payment on our student loans every time we get paid. That means instead of making 12 payments per year, we make 26 payments per year. And like I said, we’ve recently entered turbo mode on the debt repayment, so right now we are making 26 full payments a year- by doing this we’ll be shaving YEARS off our expected debt repayment. As a matter of fact, we are hoping to be rid of our student loan debt within two years if we can keep up this pace. There are a few variables that may alter the expected course; for example, right now we are trying to adopt and we have a certain amount of money set aside for that. But if adoption ends up costing more than we have set aside we may have to funnel some of the debt repayment funds toward that instead. But overall we are now dedicated to getting rid of the student loan debt as soon as possible.
We really like making automatic payments on our debt for the same reasons why we like automatic savings: it happens automatically. We don’t have to think about it at all. Our debt repayments go out at the same time as our automatic savings draw, which happens the Monday after we get paid (we always get paid on Fridays).
So can you do something like this if you don’t get paid every two weeks? Of course you can! You might have to get a little more creative with your budgeting if that’s the case. But you could still set up a system where you either just automatically send out one large payment a month right after you get paid (I personally think it’s easier to “pay extra” on debt if you do it right away after getting paid, at the same time you send money to your savings if you do that), OR you could set up weekly or bi-weekly debt payments. But the huge benefit of making the extra debt payment right away is that then the money is already out of your account and the decision to pay or not pay extra on your debt is not left up to “well let’s see if we have enough money left at the end of the month.” Most people will not be very successful at making extra debt payments that way. By automating both your savings AND your debt repayment, you can automatically increase your net worth. Every. Single. Month. How awesome would THAT be?
These days the internet has made it easier than ever to keep tabs on your net worth. If you don’t want the hassle of tracking down all your numbers and creating your own spreadsheet, the best FREE online resource that I know of to help you monitor your net worth is Personal Capital (review here). Even though we’ve long kept our own net worth spreadsheet, I also have an account with Personal Capital. It’s a terrific resource to help see where your money is going and establish a better budget, as well as better plan your retirement savings strategy. And it’s FREE- doesn’t get much better than that!
Does anyone else use automatic debt repayments? What other methods do you use to pay extra on debts?
Suggested Reading: If you are interested in reading more about awesome ways to automate your financial life, I recommend The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich (affiliate link). This is one of our all-time favorite personal finance books- I’ve read it multiple times and every time it motivates me even more to become a financial rock star!
P.S. If you liked this post, you might enjoy using our free Net Worth Calculation Template. Sign up now to receive each new post delivered to your inbox, and we will email you the template! Sign up here.