Whilst Christmas has gone for another year; if you spent too much it is worth reflecting to see what you can learn for 2013. Use this learning as an opportunity to change behaviour and get smarter with your money, make this part of your New Year Resolutions. One way to improve your financial efficiency is automatic transfer. Like all things though auto transfers have advantages and disadvantages. Peter wood explains how.
Automatic transfers may not always lead to auto-sanity when it comes to Christmas finances. Knowing when transfers are your friends and when to avoid them can alleviate financial stress, helping you stay merry throughout the festive season.
The first step towards freedom from poor Christmas finance choices is being ready to spot the traps that catch people out during busy periods.
When direct transfers cost you in interest
So many banking transactions happen at Christmas time, and setting up transfers to pay for predictable goods and services can be a good idea. Of course, pre-authorised bank transfers can then sting you with fees and overdraw charges when there are insufficient funds in your account.
But more importantly, credit accounts will charge you interest immediately on any cash funds you withdraw. This includes any BPAY transfers to other people’s cash accounts. Everything from direct transfers for online purchases and automatic rent payments are places people get stung.
You might be finance savvy when it comes to your personal cash flow, but any transfer larger than you were expecting can quickly tarnish your good record. You may need a buffer zone in case your electricity bill is higher than usual to ensure you have enough in your account to cover the extra costs. Overspending at Christmas is one way you can dip into this buffer.
Fees from ongoing transfers
Auto transfers leave you exposed to fees should you forget to cancel unwanted transactions, overlook changes to pricing, or proceed with insufficient funds. Writing every direct debit you authorise on your calendar may help avoid headaches down the track.
On the other hand, when used to their full potential, automatic transfers can alleviate many of the stresses that come with juggling busy finances. They can pay your bills on time, keep interest obligations to a minimum and even pay off any luxuries in instalments that suit your lifestyle.
So what do you look for when deciding how to activate your automatic transfers?
When transfers avoid fees
You may be generally up to date on your credit card interest payments, but be up for the occasional late fee whenever you miss a payment date. Automatic transfers can ensure the minimum is always paid, avoiding any late fees. This lets you focus on holding off on interest until the due date, maximising your monthly cash flow.
Transferring for high interest
A high interest account may pay you around 5 per cent more than your everyday transaction account. A good habit for the New Year could be to set up automatic transfers into an account where your money is working harder for you. If you took just $100 each week, you would have $5330 by next Christmas – $130 of which comes from interest. Not bad for starting from $0.
Transfers to self
In a similar way to the concept above, you could spin the idea of transferring funds so they work harder for you by paying yourself an allowance. This way, you can keep your money in a high interest savings account where it’s accumulating the most interest and live on, say, 70 per cent of your income. With interest calculated daily, you could squeeze further rewards with clever timing.
Auto transfers can be your best friend as well as that person who reminds you of payments each month. However, when you can combine ‘transfers to pay’ with ‘transfers to save’, you should never miss a payment or endure a late fee again while also accumulating some spare cash in the process.