Automating Your Finances

January 15th, 2014

At work, I’ve always loved thinking through processes. There’s just something about identifying the most efficient way for inputs to lead to outputs, and I should have figured that I could apply the same rigor to my personal finances.

In “I Will Teach You To Be Rich“, Ramit discusses automating your finances. Your paycheck lands in your lap at the start of the month and just imagine all of your prescribed percentages being carved out and allocated to the desired accounts, bills, and budgets.

Here’s a sample of what Ramit recommends...

On the 2nd of the month:
Part of your salary goes into your 401k
The rest of your salary is direct deposited into your checking account

On the 5th of the month:
Automatic transfer from checkings to savings accounts
Automatic transfer from checkings account to Roth IRA

On the 7th of the month:
Automatic payment of bills from checking account and credit card
Automatic transfer from checking account to pay off credit card bill

It’ll take a week or two to setup all of these recurring transactions with your banks, funds, bills etc. but it’s well worth it.

To manage this process, some online banks like Alloy or Capital One 360 (previously ING Direct) offer neat systems for managing multiple savings accounts so you can break your savings up into meaningful buckets (e.g., Emergency Fund, future laptop purchase, vacation money). Once you get into the groove, Mint.com is similarly super helpful for tracking your transactions + monthly budgets (bonus: their iPad app is pretty impressive.)

I’m also a big fan of Chase’s system for sending checks automatically on a regular schedule (never worry about remembering your rent check!) as well as repeating Chase Quickpay payments (for the other certified adults sending money to parents for that Verizon family plan).

There you have it. Money comes in and it’s like the neat little robots chop everything up and distribute the wealth accordingly. It keeps the monthly process consistent and care-free.

If you’re all set, treat yourself to a self high five, kick back, and enjoy the J-pop stylings of Utada Hikaru and their 1998 hit “Automatic.”