This turned out to be a rather lengthy article, so I have split it up into more manageable chunks. This is part three of the chunks. Part One can be found at Do You Make These Money Mistakes? Pt 1
6. Not Automating Savings and Bills
Relying on your memory and willpower to manage money is like trying to drive across Canada using only paper maps and your sense of direction. It might work sometimes, but you’re making the journey much harder than it needs to be.
The problem with manual money management is that life gets busy. You forget to transfer money to savings, you miss bill due dates, or you spend money you meant to save because it’s sitting in your chequing account looking available.
Kevin’s Late Fee Nightmare: This busy Vancouver father was paying over $200 per year in late fees because he’d forget to pay bills on time. “I had the money,” he explains. “I just couldn’t keep track of all the different due dates. Setting up automatic payments saved me money and gave me peace of mind.”
The Psychology of “I’ll Remember to Save”
Here’s a uncomfortable truth: if saving money requires you to actively make a decision every paycheque, you probably won’t save consistently. It’s not because you’re lazy or irresponsible – it’s because humans are naturally better at spending money than saving it.
When money sits in your chequing account, your brain categorizes it as “available to spend.” When you have to actively transfer money to savings, you’re fighting against your natural impulses. Automation removes the decision-making and makes saving feel effortless.
Late Fees and Missed Opportunities
Late fees might seem small, but they add up quickly. A $25 late fee here, a $35 NSF charge there, and suddenly you’re paying hundreds of dollars per year for disorganization. That’s money that could be growing in your savings account instead.
But missed opportunities cost even more than late fees. Every month you don’t save is a month you lose potential compound interest. Every bill you pay late hurts your credit score, which can cost you thousands in higher interest rates on future loans.
Setting Up Automatic Systems for Success
Automation isn’t just convenient – it’s a powerful tool for building wealth. Here’s how to set up systems that work for you:
Automate Your Savings
- Set up automatic transfers from chequing to savings on payday
- Start small – even $25 per paycheque makes a difference
- Use separate accounts for different goals (emergency fund, vacation, car replacement)
- Consider using a high-interest savings account to maximize growth
Automate Your Bills
- Set up automatic payments for fixed expenses (rent, insurance, phone)
- Use your bank’s bill payment service for variable expenses (utilities, credit cards)
- Schedule payments a few days before due dates to avoid late fees
- Still review your statements monthly to catch errors
- Check to ensure automated payments were made! I have had a couple where the bank “lost” the payment.
Automate Your Investments
- Set up automatic RRSP contributions through your employer
- Use systematic investment plans for your TFSA
- Dollar-cost average into index funds or ETFs
- Automate increases to your contributions annually
The “Set It and Forget It” Approach
The beauty of automation is that it removes the daily decisions that drain your willpower. Instead of deciding whether to save money every paycheque, you make the decision once and let the system handle it.
This doesn’t mean you should never check your accounts or review your finances. But it does mean you can focus your energy on bigger financial decisions instead of constantly managing the basics. I have everything automated, but I check daily to ensure that no untoward activity has occurred, and no actions have been missed.
Your Next Step:
Pick one area to automate this week. If you’re not saving automatically, set up a transfer of $50 per paycheque to a separate savings account. If you’re paying late fees, set up automatic payments for your three most important bills.
7. Lifestyle Inflation: The Silent Wealth Killer
Congratulations! You just got a raise. Your salary went from $50,000 to $55,000. You’re officially making more money than ever before. Six months later, you’re wondering why you don’t feel any richer. In fact, you might feel just as financially stretched as before.
Welcome to lifestyle inflation – the sneaky habit of increasing your spending whenever your income increases. It’s one of the biggest reasons why people who earn good money still struggle financially.
Rachel’s Raise Reality: When this Calgary nurse got a $400 monthly raise, she thought her money troubles were over. “I upgraded my apartment, bought a nicer car, and started eating out more often,” she recalls. “Within a year, I was spending more than my entire raise and felt just as broke as before. I realized I was working harder but not getting ahead.”
The Trap of Spending More as You Earn More
Lifestyle inflation feels natural and even justified. You’re working harder, you deserve nice things, and you can afford them now. The problem is that every dollar you spend on lifestyle upgrades is a dollar that can’t grow through savings and investments.
Here’s what lifestyle inflation looks like in real life:
Common Lifestyle Inflation Traps
- Upgrading to a more expensive apartment or house
- Buying a newer, more expensive car when your current one works fine
- Eating out more frequently or at more expensive restaurants
- Upgrading gadgets and electronics more often
- Buying more expensive clothes, shoes, and accessories
- Taking more expensive vacations
- Subscribing to more services and entertainment options
We’ve covered the topic What You Need to Know about Avoiding Lifestyle Creep in a little more depth.
Why Raises Don’t Always Improve Financial Security
The cruel irony of lifestyle inflation is that it can actually make you less financially secure. When you increase your spending to match your income, you’re not building wealth – you’re just living more expensively.
This becomes dangerous when life changes. If you lose your job, get sick, or face any financial emergency, you now have higher expenses to maintain. The lifestyle that was supposed to make you feel successful becomes a financial burden.
Strategies to Maintain Spending Discipline
The goal isn’t to never enjoy your increased income – it’s to enjoy it strategically while still building wealth for the future.
The 50/50 Rule
When you get a raise, split the after-tax increase in half. Use 50% to increase your savings and investments, and 50% to improve your lifestyle. This way, you still get to enjoy some immediate benefits while securing your future.
The One-Year Delay
When you get a raise, wait one full year before making any major lifestyle changes. This gives you time to adjust to the new income level and make thoughtful decisions about how to use the extra money.
Focus on Experiences, Not Things
Research shows that spending money on experiences (travel, concerts, classes) provides more lasting happiness than spending on material goods. When you do decide to upgrade your lifestyle, prioritize experiences over stuff.
Automate the Savings Increase
The easiest way to avoid lifestyle inflation is to automatically save part of any raise before you get used to having the extra money. Increase your automatic savings transfers immediately when your income increases.
Your Next Step:
Calculate how much your last raise or bonus increased your monthly income. If you haven’t already, set up an automatic transfer to move half of that increase into savings. If you haven’t gotten a raise recently, commit to this strategy for your next income increase.
Part Four can be found at Do You Make These Money Mistakes? Pt 4
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Disclaimer for ManageYourMoney.ca
The information provided on ManageYourMoney.ca is intended for educational and informational purposes only. It should not be taken as financial advice. The opinions shared are those of the authors and are meant to encourage sensible financial habits and decision-making. We recommend that you do your own research or consult a certified financial advisor before making any financial or investment decisions. All investments come with risks, and there is no guarantee of success. Past performance is not a reliable indicator of future results. Always consider your personal financial situation and risk tolerance before pursuing any investment opportunities.
As always, I am not a qualified financial advisor. I just relate financial management to my own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of mine came from expensive experiences.
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