How to Automate Your Finances

Today I want to teach you how to automate your financial accounts. The first key to doing this is to try to get your bills to be sent to you all on the first of the month. So, what you want to do first is call up your credit card and ask them if they will switch your billing date to the first of the month, and I’m going to assume in this example that you are also paid on the first of the month.

That just makes things easier, if you are not paid once a month, or your, paid every two weeks, or your paid on the fifteenth of the month, you can adjust these numbers accordingly. But I’m just going to keep it simple. Let’s assume that your credit card bill arrives on the first of the month, and that your paid on the first of the month.

Money Allocation and How to
Automate you Accounts


Here’s what you’re going to do to automate your accounts, and it’s the way I spend less than an hour a week managing my personal finances in terms of accounts. Here’s what you do.

The first thing is you take your paycheck; so, you’ve got your paycheck. This arrives on the first of the month. The first thing it’s going to do, before the money even reaches you, is send a certain percentage to your 401(k). And of course, you want to be taking out so much money as possible for the 401(k) match. Then you want to go over to your Roth IRA, max that out if you’re under the income limit, and then if you still have money left over go back to your 401(k) and fill that up.


So, before you ever see the money it’s going to come out of your paycheck and go to your 401(k).  The rest of the money is going to go down here to your checking account. Your checking account is the central part of your personal finance infrastructure.

So, it’s really important that you get a great checking account. I really like the Schwab High Yield Investor checking account. It’s free, there are no minimums, no tricks, no fees, and you get a little bit of interest earned as well, so I really like that account. You can also send in money through a pre-stamped, pre-addressed envelope. It’s pretty cool. Or you can use whatever you like, just make sure that your checking account should be a good one.

Alright, once you’ve got your checking account, then what’s going to happen is, as soon as the money is transferred here it’s again going to get automatically transferred to two different places. First, is your Roth IRA. Like I said, you’re sending money to your 401(k) for the match, then you’re going to send money to your Roth IRA. You want to max that out as much as possible.

The other place that your money is automatically going to go before you see it is your savings account. And in your savings account, you’re going to be having sub-savings accounts, for example, for your wedding, for your vacation, for your house down payment.

You can set those up. I do that using ING Direct. Within ING Direct you can actually create sub-savings accounts, like wedding, vacation, down payment, and it’ll just track it automatically for you.

So, I use a principle called the next 100 dollars. Of the next 100 dollars you get, how is that money going to be allocated? Of course, you want to be sending say five dollars of that 100 dollars, or five percent to your 401(k), maybe five percent to your Roth IRA, maybe five percent here to your savings, and within there one percent, two percent, etc.

Now you’ve basically, automatically transferred money to all these places. You can do this by logging in to your savings account and setting up an automatic transfer from checking to savings. You can do the same thing by logging into your Roth IRA, you’ll connect to your checking account, you’ll send a little verification, this is all free, and you will instruct it to draw from your checking account to your Roth IRA. Now I’ll talk to you about timing in a second, but stick with me for now.

Now in your checking account, you’ve got money. Your money has already been withdrawn to the appropriate places. So, you’ve got a few places now that you want to send it in terms of spending. From your checking account, you’re going to use your checking account to pay off your credit card.

So, what my credit card does is once a month it reaches into my checking account, and it says, “Alright, your bill is $1,000 this month, “I’m going to take $1,000 out of my checking account.” Of course, I know there’s $1,000 there, because I know my paycheck arrives on the first of the month, and when it withdraws the bill, it’s going to take it straight from my checking  account, causing me no overdrafts, because I know there’s money in there.

The other place you’re going to be putting money in is you’re going to be putting it into miscellaneous bills. So, let me show you what this means. For miscellaneous bills, these are things where you want to pay it off, but unfortunately, the recipient doesn’t accept credit cards, like rent.

So, for example, if you have rent, you probably, have an old man for a landlord, he may not have a credit card processing set up, because she’s backwards and all, so you probably have to send him a check. I don’t send a check manually, ever, unless I absolutely have to. I set it up so that, on, let’s say the 31st or 30th of the month, it goes from my checking account automatically, because I know the amount is the same every month.

So, I set up what’s called bill pay. All banks have this now through your checking account. So, a bill is automatically issued. Remember, I know there’s money in here, because my paycheck is here. It sent money to my checking account, and I know there is at least $1,000 left. So, an automatic check is issued around the 26th of the month. That goes here to your landlord and you never have to touch it all. All you do is you get an e-mail notification around the 26th saying your check has been sent. And your landlord always gets it on the exact rent day.

There are a couple other things to this. Let’s go back to your credit card for a second. Your credit card should have all standard bills. So, we’re going to talk about bills like Rhapsody or Netflix. Anything that’s a standard amount that you know the same amount is going to be charged every month.

So, Netflix, $12 a month. Boom! it’s going to be transferred on my credit card, and I’m never going to have to worry about it again. What you do, is you go into Netflix, you add your credit card and just set up automatic billing. Of course, it will bill this, and this will be paid off by logging into that.

Guilt-free Spending

The other thing is your guilt-free spending. So, if you are maxing out your 401(k), if you are maxing out your Roth IRA, if you are doing a savings plan that gets you where you need to go, you definitely should be spending money. And so, you should enjoy your money. When I go out and I spend money, I don’t feel guilty about it ever, partially because I’m a robot, and second because I know that the rest of my finances are being taken care of. This is where guilt-free spending comes in. So, if you spend money on a nice dinner, don’t feel guilty, you know that everything else is being handled automatically.

Cash Withdrawals

There are the occasional amounts where you are going to have to do cash withdrawals. I don’t like to use cash because I don’t earn points, and, you know, it’s just kind of messy. I prefer to charge everything on my credit card so I can track it. But once in a while you are going to need to do cash withdrawals. So, you may just want to say, $100 a month, or $100 every two weeks, whatever it may be, that’s going to come straight from your checking, through your debit card here. Again, you’ll note that there is not a debit card use here, I don’t really like debit cards very much. So, I just prefer to put everything on my credit card as much as possible.

 Now, we’re going to talk about one other thing. And I’ll come back to that whiteboard in a second. But we’re going to talk about the timing on this, because it’s pretty important. Let me first sum up what we just talked about.

In this diagram, you have your paycheck which arrives. It then pays your 401(k) and it pays your checking account. You then have your checking account, which is the central part, it’s like your e-mail inbox, it pays your Roth IRA, your savings account, which is subdivided into wedding vacation, or whatever savings goals you have, pays your credit card, your credit card will actually reach into your checking account and pay itself once a month.

Your checking account is going to pay fixed costs that don’t take credit cards, like rent or miscellaneous bills, and your occasional cash withdrawals. Your credit card, of course, is going to pay your fixed costs, like your bills, and it’s going to allow you to have some guilt-free spending. So that’s the way you automate your financial accounts.

Now, one thing I want to talk to you on the time. So, here’s how I prefer to set it up. The first of the month, you get paid, your paycheck arrives. The other thing is your credit card bill should arrive. Now remember when your bill arrives you have about two weeks to pay it off, so keep that in mind. On the second of the month, your paycheck will pay your 401(k), your paycheck will also direct deposit into your checking account. It’s really important to set up direct deposit.

First of all, you can get a bunch of free stuff from your bank for doing it, like free checking and all this stuff. Second, you just shouldn’t be having to go to the bank and deposit it. You want your money to start earning interest right away. You also don’t want to have checks that are large enough like your paycheck to be sitting around. Get it direct deposited.

You can talk to your employer in the HR department to set that up. On the fifth of the month, your checking should pay your savings account and your Roth IRA. The reason I leave a few days is in case your check doesn’t come through for some reason, you don’t want to have an automatic transfer where your Roth is taking money out of your checking account and you have an overdraft. So, I leave a few days just to make sure you tie everything up. On the seventh of the month, you’re going to pay your bills from your credit card and any other miscellaneous spending.

The reason I do that is because you want to make sure that all the cash is in your checking account, everything else has been processed. That way when your credit card is paid off, you know the bill is $1,000, and you’re going to make sure your checking account has at least $1,000 in there, and it’s going to pay it off automatically.

What this does is, you should basically be getting notifications every few days saying this is what’s happening, this is what’s happening. You will not really have to take an active participation in it, except to make sure that you’re not overspending. That’s the one area I missed. Diagram, the one area where you can really fail is here, if you spend too much. So, don’t spend too much on your credit card. But you can be able to isolate where spending is and where it’s not.

If you follow these steps you can automated your finances and save yourself a lot of time each and every month.