How To Automate Your Finances In 4 Easy Steps

Do you love to save time and build wealth? Automate your finances like a pro with these 4 easy steps.

Automation can be a beautiful thing. I recently automated my coffee machine to brew while I’m getting dressed in the morning. As a result, every morning I go downstairs to my kitchen and find a freshly brewed cup of coffee waiting for me.

 

In addition, the same can be done for finances and I would argue you will end up with a much better financial outlook with automation.  

 

What Does Automate Your Finances Mean?

Simply put, it means setting up your finances to run automatically from beginning to end. 

For instance, below is a perfect illustration of the ideal flow of your money:

 

 

 

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Automating your finances is a powerful tool because of a few reasons, it’s simple and it protects you from yourself.

Simplicity is the key. If something gets too complex, many people will fail to stick with the process. Automation also protects us from our own bad habits such as lifestyle inflation or market timing.

 

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Here Are 4 Easy Ways To Get Started:

1. Automate Your Payroll Deductions

To start, we need to pay ourselves first which means even before Uncle Sam can get his hands on our money.  We do this by enrolling in payroll deductions into our retirement accounts.  

Taking advantage of payroll deductions with your company 401k/403b, 457 plans, and HSA accounts also result in immediate tax benefits.

 

2. Schedule Transfers To Your Savings Accounts

Secondly, after payroll deductions, usually, your paycheck will get direct deposited into a checking account.  The next step is to calculate how much money you need for your monthly expenses.  

 

The difference between your monthly income and monthly expenses should be sent directly to a savings account (Income – Expenses = Send To Savings Account).  You should do this as early as possible without incurring overdraft fees. This way your money doesn’t sit in your checking account where it can be spent on unplanned discretionary spending.  

For example, if every month you have $500 of extra income and you have to actively deposit that money into an investment account, it’s likely that some of those months there will be a “good” reason to do something else with that money. 

It’s just our human nature, so the solution is to never see the money. You can’t miss something you never had.

Consequently, this step will allow you to reach your savings goals much faster and you will make do with what you set aside for yourself to spend.  

For this to work you should leave yourself a little bit of wiggle room to plan for small unexpected expenses or to “treat yo self”.

 

3. Automate Your Bills: Sign Up For AutoPay

AutoPay is a fantastic way to make sure you are never late on your payments and thus improve your credit score.  It also frees your mind to focus on other things such as hobbies or side hustles.  

 

Another perk of autopay is that many companies will incentivize you with discounts on your monthly bill.  Comcast, for example, gave me $5 off my monthly bill for signing up for autopay. That’s $60 a year for doing less work!

 

4. Reinvest All Dividends

Lastly, your portfolio will grow much faster with automatic dividend reinvestment.  Confirm your accounts are set to this preference. If you don’t need the money now it’s better to reinvest it and have that money keep compounding over time.  

 

While automatic reinvestments help you in the future, they also help you now because you won’t be responsible for paying taxes on that money.

 

There is also no commission fees when purchasing shares through automatic dividend reinvestment.  

 

After you have set up these accounts you won’t have to pay too much attention to them and you won’t miss the money because you will never see it!