{"id":59120,"date":"2024-05-13T23:11:00","date_gmt":"2024-05-14T03:11:00","guid":{"rendered":"https:\/\/www.iwillteachyoutoberich.com\/?p=59120"},"modified":"2025-04-28T08:19:10","modified_gmt":"2025-04-28T12:19:10","slug":"automate-your-finances","status":"publish","type":"post","link":"https:\/\/www.iwillteachyoutoberich.com\/automate-your-finances\/","title":{"rendered":"Automate Your Finances Using Technology and Psychology"},"content":{"rendered":"\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t

Learning how to automate your finances has the potential to be a money game-changer.<\/span><\/p>\n

Why? Because on a daily basis, we face too many choices. Using automation to reduce choices sets you up for success with money without even having to think about it daily. You can truly \u201cset it and forget it\u201d to save money and <\/span>invest in your future<\/span><\/a>.<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t
\n\t\t\t\t\t

Why Is Automating Your Finances Important?<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t

<\/p>\n

<\/p>\n

<\/p>\n

<\/p>\n

Think about the 50+ money decisions you have to make today: Should you save more? What should you cut down on? What about investing\u2014real estate or stocks or <\/span>index funds<\/span><\/a>? Pay off debt? Did you send in that Comcast bill on time? Is it time to <\/span>rebalance your portfolio<\/span><\/a>?<\/span><\/p>\n

Faced with an overwhelming number of choices, most people respond in the same way: They do nothing. As Barry Schwartz wrote in <\/span>The Paradox of Choice: Why More is Less<\/span><\/i>, \u201c<\/span>Choice has made us not freer but more paralyzed.\u201d<\/span><\/p>\n

\u00a0<\/p>\n

Why do so many people believe that <\/span>personal finance<\/span><\/a> is only about willpower? The idea goes like this: \u201cIf I just try harder, I\u2019ll start saving more, pay off my debt, stop spending all that money, <\/span>keep a budget<\/span><\/a>, learn about investing, <\/span>start investing,<\/span><\/a> rebalance every year\u2026\u201d Unlikely.<\/span><\/p>\n

In fact, go ask your friends if they\u2019re taking full advantage of their employer\u2019s <\/span>401(k) match<\/span><\/a>. The vast majority of people are not \u2013 even though it\u2019s literally free money. Their answer? \u201cYeah\u2026I really should do that\u2026\u201d<\/span><\/p>\n

It\u2019s not about willpower. More than anything else, the psychology of automation is critical to successfully <\/span>getting control of your finances<\/span><\/a>.<\/span><\/p>\n

In one study, researchers <\/span>found<\/span><\/a> that making 401(k) accounts opt-<\/span>out<\/span><\/i> instead of opt-<\/span>in<\/span><\/i>\u2014in other words, making employees automatically participate, although they could stop at any time\u2014raised contribution rates from less than 40% to nearly 100%.<\/span><\/p>\n

<\/p>\n

<\/p>\n

<\/figure>\n

<\/p>\n

<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"\"\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t

How to Automate Your Finances?<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t

Using \u201cThe Next $100\u201d Principle, which I\u2019ll show you below, your automated money flow will automatically route money where it needs to go\u2014<\/span>investments<\/span><\/a>, paying bills, <\/span>savings<\/span><\/a>, and <\/span>guilt-free spending<\/span><\/a>.<\/span><\/p>\n

And you can focus on the things that matter to you, instead of constantly worrying about your <\/span>personal finances<\/span><\/a> like the couple I mentioned in this <\/b>recent CNBC article<\/b><\/a>.<\/b><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t
\n\t\t\t\t\t

Case Study: Michelle\u2019s Automation System<\/h3>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t

To see how this will work, let\u2019s use Michelle as an example:<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"\"\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t

Michelle gets paid once a month. Her employer deducts 5 percent of her pay automatically and puts it in her 401(k). The rest of Michelle\u2019s paycheck goes to her checking account by direct deposit.<\/span><\/p>\n

About a day later, her Automatic Money Flow begins transferring money out of her checking account. Her <\/span>Roth IRA<\/span><\/a> retirement account will pull 5 percent of her salary for itself.<\/span><\/p>\n

Her savings account will pull 5 percent, automatically breaking that money into chunks: 2 percent for a wedding sub-account, 2 percent to a house down-payment sub-account, and 1% for an upcoming vacation. (That takes care of her monthly savings goals.)<\/span><\/p>\n

Her system also automatically pays her fixed costs like Netflix, cable, and insurance. She\u2019s set it up so that most of her subscriptions and bills are paid by her <\/span>credit card.<\/span><\/a> Some of her bills can\u2019t be put on credit cards\u2014for example, utilities and loans\u2014so they\u2019re automatically paid out of her checking account.<\/span><\/p>\n

Finally, she\u2019s automatically e-mailed a copy of her credit card bill for a monthly five-minute review. After she\u2019s reviewed it, the bill is also paid from her checking account.<\/span><\/p>\n

The money that remains in her account is used for guilt-free spending money.<\/span><\/p>\n

To make sure she doesn\u2019t overspend, she\u2019s focused on two big wins: eating out and spending money on clothes.<\/span><\/p>\n

She sets alerts in PocketGuard account, the free money app she\u2019s downloaded,\u00a0 to notify her if she goes over her spending goals, and she keeps a reserve of $500 in her checking account just in case. (The couple of times she went over her spending, she paid herself back using her \u201cunexpected expenses\u201d money from her sub-savings account.) To track spending more easily, she uses her credit card as much as possible to pay for all of her fun stuff.<\/span><\/p>\n

Guilt-free spending is a key aspect of your personal finance journey. If you\u2019re ready to leave the guilty feelings behind, <\/span>episode 90 of my podcast<\/span><\/a> answers your questions about money and guilt.\u00a0<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t
\n\t\t\t\t\t\t\t
\n\t\t\t
<\/div>\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t
The world wants you to be vanilla...\n\n<\/div>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t

\u2026but you don\u2019t have to take the same path as everyone else. How would it look if you designed a Rich Life on your own terms? Take our quiz and find out: <\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t
\n\t\t\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\tTake the Quiz<\/span>\n\t\t\t\t\t<\/span>\n\t\t\t\t\t<\/a>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t

<\/p>\n

If Michelle\u00a0 uses cash for cabs or coffee, she keeps the receipts and tries to enter them into PocketGuard\u00a0 as often as possible.<\/span><\/p>\n

In the middle of the month, Michelle\u2019s calendar reminds her to check her PocketGuard account to make sure she\u2019s within her limits for spending money. If she\u2019s doing fine, she gets on with her life. If she\u2019s over her limit, she decides what she needs to cut back on to stay on course for the month.<\/span><\/p>\n

Luckily, she has fifteen days to get it right, and by politely passing on an invitation to dine out, she gets back on track.<\/span><\/p>\n

By the end of the month, she\u2019s spent less than two hours monitoring her finances, yet she\u2019s invested 10 percent, saved 5 percent (in sub-buckets for her <\/span>wedding<\/span><\/a> and <\/span>down paymen<\/span><\/a>t), paid all of her bills on time, paid off her credit card in full, and spent exactly what she wanted to spend. She had to say \u201cno\u201d only once, and it was no big deal. In fact, none of it was.<\/span><\/p>\n

<\/p>\n

<\/p>\n

<\/p>\n

<\/p>\n

<\/center>\n

<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t
\n\t\t\t\t\t

\"The Next $100\" Principle Applied: Automating Your Finances<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t

Too many people try to save money on 50 things and end up saving 5% on everything\u2014and causing themselves stress that makes them give up entirely.\u00a0<\/span><\/p>\n

Instead, I prefer to focus on my top two discretionary expenses (for me, eating out and going out) and cut 25%-33% off over six months. This generates hundreds of dollars of extra cash flow that I reroute to<\/span> investing<\/span><\/a> and <\/span>travel<\/span><\/a>.<\/span><\/p>\n

To show you how automating your accounts works, I\u2019ve prepared a 12-minute video that guides\u00a0 you on how to build a personal finance infrastructure that automates your money so you can spend less than 1 hour per week monitoring your money. Everything will be done automatically\u2014investment, savings, bills paid. Everything.<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t
\n\t\t\t\t\t

Ramit\u2019s 12-Minute Guide to Automating Your Finances<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t
\n\t\t\t
<\/div>\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t

1. Log into all of your accounts<\/h3>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t

First, you\u2019ll need to log in to each account and link your accounts together so you can set up automatic transfers from one account to another. When you log in to any of your accounts, you\u2019ll usually find an option called something like \u201cLink Accounts,\u201d \u201cTransfer,\u201d or \u201cSet Up Payments.\u201d<\/span><\/p>\n

These are the links you need to make:<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"\"\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t

Examples: Your 401(k) should be connected to your checking account via direct deposit (talk to your HR rep about setting this up\u2014it takes 10 minutes to fill out a form). Then log into your <\/span>Roth IRA<\/span><\/a>, savings account, and credit card, where you can link your checking account to them.<\/span><\/p>\n

Finally,\u00a0 some bills can\u2019t be paid through your checking account, like your rent. For those, use your checking account\u2019s free bill-pay feature so they automatically issue your landlord a check on the precise date it\u2019s due. Now, you never have to manually write a check again.<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t
\n\t\t\t\t\t

2. Set up automatic transfers<\/h3>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t

Now that all your accounts are linked, it\u2019s time to go back into your accounts and automate all transfers and payments. This is really simple: It\u2019s just a matter of working with each individual account\u2019s website to make sure your payment or transfer is set up for the amount you want and on the date you want.<\/span><\/p>\n

Most people neglect one thing when automating: dates. If you set automatic transfers at weird times, it will inevitably necessitate more work, which will make you resent and eventually ignore your personal finance infrastructure.<\/span><\/p>\n

For example, if your credit card is due on the 1st of the month, but you don\u2019t get paid until the 15th, how does that work? If you don\u2019t synchronize all your bills, you\u2019ll have to pay things at different times and that will require you to reconcile accounts. Which you won\u2019t do.<\/span><\/p>\n

The easiest way to avoid this is to get all your bills on the same schedule.<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t
\n\t\t\t\t\t

3. Get all of your bills on the same schedule<\/h3>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t

To accomplish this, get all your bills together, call the companies, and ask them to <\/span>switch your billing dates<\/span><\/a>. It shouldn\u2019t take more than 10 minutes to set this up.<\/span><\/p>\n

There may be a couple of months of odd billing as your accounts adjust, but it will smooth itself out after that. If you\u2019re paid on the 1st of the month, I suggest switching all your bills to arrive on or around that time, too.<\/span><\/p>\n

Call and say this: \u201cHi, I\u2019m currently being billed on the 17th of each month, and I\u2019d like to change that to the 1st of the month. Do I need to do anything besides ask right here on the phone?\u201d Of course, depending on your situation, you can request any billing date that will be easy for you.<\/span><\/p>\n

Now that you\u2019ve got everything coming at the beginning of the month, it\u2019s time to actually go in and set up your transfers. Here\u2019s how to arrange your Automatic Money Flow, assuming you get paid on the 1st of the month.<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t
\n\t\t\t\t\t

2nd of the month<\/h4>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t

Part of your paycheck is automatically sent to your 401(k). The remainder (your \u201ctake-home pay\u201d) is directly deposited into your checking account. Even though you\u2019re paid on the 1st, the money may not show up in your account until the 2nd, so be sure to account for that.<\/span><\/p>\n

Remember, you\u2019re treating your checking account like your email inbox\u2014first, everything goes there, then it\u2019s filtered away to the appropriate place.<\/span><\/p>\n

Note: The first time you set this up, leave a buffer amount of money\u2014I recommend $500\u2014in your checking account just in case a transfer doesn\u2019t go right. And don\u2019t worry: If something does go wrong, use the negotiation tips above to get any overdraft fees waived.<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

\n\t\t\t\t
\n\t\t\t\t\t

5th of the month\n<\/h4>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t