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Episode 2972:
Tania Brown demonstrates how automating finances can simplify life while fostering better money habits. By setting up tools for budgeting, bill payment, savings, retirement contributions, and tax-efficient investing, she outlines a low-effort system that helps busy individuals achieve financial security and peace of mind.
Read along with the original article(s) here: https://www.financialfinesse.com/2018/03/26/how-to-put-your-finances-on-auto-pilot/
Quotes to ponder:
"My ability to save doesn’t have to do with willpower or self-control. Instead, it’s all about the systems I have in place to make my pool of money look as small as possible."
"The best part is that her time and effort spent on money will be minimal going forward."
"Your habits surrounding how you spend and save money are much more impactful than the knowledge you may have about how money works."
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[00:00:39] It's a Minimalist Monday edition of Optimal Finance Daily. How To Put Your Finances On Autopilot by Tania Brown with FinancialFinesse.com
[00:00:50] Years ago, I had a friend who was a single, recently divorced, full-time working mother of four, with three of the kids under the age of five. To call her life busy would be an understatement. She asked me for help organizing her finances, and I agreed. I knew whatever strategy we developed had to be easy and automated. Here's what we did.
[00:01:14] Automating the budget. The first thing we worked on was her budget. We looked at a variety of budgeting websites. There are many great money management websites. And she decided on Mint, which she said was the easiest to learn. She also liked that it helped her to keep on track without her having to input a lot of information.
[00:01:34] Putting some rules in place. Once we got her information loaded and categorized her expenses, we made sure to put rules in place in Mint to continuously assign each expense to a particular budget category.
[00:01:49] We then changed some of the budget categories to ones that matched her needs.
[00:01:54] What She Loves Most About This Step
[00:01:57] What she Loved Most Was That Mint Created The Initial Budget Based On Her Current Spending
[00:02:02] It was able to tell her when she got off budget, and it alerted her to high withdrawals or when she was close to maxing out her credit cards.
[00:02:11] This made her aware of her spending, so she could quickly develop a plan to pay off her credit cards.
[00:02:17] It also recorded all her credit card transactions, including an unapproved charge that she was able to get taken off.
[00:02:25] Automating Bill Payment
[00:02:27] Next, we set up electronic bill payments through her bank.
[00:02:31] She was a little nervous about just setting up automatic payments with the vendors, so we decided to go this route, but it makes it as easy as possible.
[00:02:40] To get started, she entered each of her bills, including the account numbers and passwords, to her online account.
[00:02:46] She then selected the e-bill option through her bank.
[00:02:50] Most of the bills took about one billing cycle to show up.
[00:02:54] But soon, she was able to see all of her bills online.
[00:02:57] She also set up email reminders through her bank, so as soon as a bill arrived, she got the email.
[00:03:04] Once the e-bills were set up, she was able to log on to her bank and pay her bills in about one minute.
[00:03:10] When e-billing isn't an option
[00:03:13] For the bills that did not have an e-bill option, she set up the bills manually and was able to still pay online, except the bank would issue a check rather than send the funds electronically.
[00:03:23] This is how she set up her child care and mortgage payments, including reminders so she would not forget them.
[00:03:30] Instead of her having to mail a check or go to each child's daycare to make a payment, she could quickly go online to pay the bills.
[00:03:37] Automating emergency savings
[00:03:40] The next thing we did was set up a savings account for emergencies.
[00:03:44] She recognized that she did not have the discipline to save with an account attached to her checking account.
[00:03:49] So we opened an account at another bank and linked it to Mint instead of opening it at her bank.
[00:03:55] Then she contacted her payroll department to automatically have a small amount withdrawn and put into savings.
[00:04:02] Because she was still working on her budget, we chose an amount small enough for her to do continuously.
[00:04:09] Automating retirement
[00:04:11] We then looked at her employer benefits and realized that she had not increased her 401k plan contributions in about four years.
[00:04:18] We did an auto-escalate.
[00:04:20] This is a feature that allows you to automatically increase your 401k plan contributions annually up until you reach a certain amount.
[00:04:29] She initially was a little nervous about doing this until I told her that she can choose an amount that she's comfortable with.
[00:04:35] And she can always stop it if it gets to be too much of her paycheck.
[00:04:39] We chose to auto-escalate 1% annually up until she got to 10%.
[00:04:46] Automating investing
[00:04:47] My friend is about as hands-off as you can get when it comes to investing.
[00:04:52] She had not opened her statements in years.
[00:04:55] We talked and decided that a target date fund based on her retirement date was the best option for her.
[00:05:01] The fund itself does the rebalancing and adjusting, giving her a sigh of relief.
[00:05:07] Automating tax savings
[00:05:10] Between our friend's four kids, she joked that she spent a quarter of her month at either a doctor's or dental appointment.
[00:05:17] She then complained about the co-pays and always feeling blindsided by an unexpected medical expense.
[00:05:23] I mentioned doing a healthcare FSA, an account that allows you to put money aside pre-tax and then use the funds tax-free for medical expenses.
[00:05:33] She also set up a dependent care FSA for her childcare expenses as well.
[00:05:39] Both of these steps will save her tons of money in taxes, while also allowing her to use payroll deductions to set the money aside.
[00:05:48] With all these features in place, I told my friend that she is now a money management ninja, ready to conquer all of her financial goals.
[00:05:56] The best part is that her time and effort spent on money will be minimal going forward.
[00:06:01] Now, if only there was a way to automate parenting.
[00:06:08] You just listened to the post titled, How to Put Your Finances on Autopilot by Tanya Brown with FinancialFinesse.com.
[00:06:16] This article reminded me of a quote from the Financial Panther who said,
[00:06:21] My ability to save doesn't have to do with willpower or self-control.
[00:06:26] Instead, it's all about the systems I have in place to make my pool of money look as small as possible.
[00:06:33] End quote.
[00:06:34] I think this reiterates one of the key things to understand about money management.
[00:06:39] It all boils down to habits.
[00:06:42] Your habits surrounding how you spend and save money are much more impactful than the knowledge you may have about how money works.
[00:06:50] And automating your saving, budgeting, and investing is a great way to solidify those habits.
[00:06:57] For me, I set up some automation outside of my retirement contributions only after I had developed some healthier financial habits.
[00:07:06] When I was first getting control of my money, I logged into all of my accounts every two weeks when I got paid
[00:07:12] to monitor my spending, pay bills, and throw money at my debt.
[00:07:17] I could have automated my bills, for example, but I wanted to force myself to engage with my budget
[00:07:23] and foster more awareness around my money.
[00:07:26] Once I got a handle on it, I automated everything.
[00:07:29] And now I just check it once a month to calculate my savings rate and monitor for fraud.
[00:07:34] I share this because while I think automating is a powerful tool, it will be less useful the smaller the gap is between your income and expenses.
[00:07:44] When that gap is small is the time to pay close attention.
[00:07:49] And a great way to increase the gap is continually growing awareness around your spending and making adjustments.
[00:07:56] If you automate saving, for example, but then need to raid your savings account due to overspending,
[00:08:02] that automation is less impactful.
[00:08:06] That'll do it for today.
[00:08:07] Thank you for listening.
[00:08:08] Have a great rest of your day.
[00:08:09] And I'll be back for tomorrow's show where your optimal life awaits.