Step-By-Step Guide to Automation

Post date: August 11, 2023 8:00 AM Step-By-Step Guide

to Automating Your Finances

How to Set Up an Automated Personal Finance System:

Managing your finances doesn’t have to be overwhelming or time-consuming. With the power of automation, you can streamline your financial tasks, reduce stress, and ensure that your financial goals are on track. In this guide, I’ll explore how to set up the personalized finance system that worked for me and will work for you too.

Step 1 - Evaluate Your Financial Goals:

Before diving into automation, take a moment to define your financial goals. Whether it’s saving for vacations, building an emergency fund, paying off debt, or planning for the days you will no longer work, knowing your objectives will help you tailor your automation strategy to meet those goals.

Ramit Sethi asks, “What is your rich life?” Dave Ramsey fans say, “Find your WHY!” Are you able to cover an emergency expense without going into debt? Do you have enough money to do the things you really want? If not, it’s time to start paying attention and making some changes.

Step 2 - Create a Budget:

A budget is the foundation of your financial system. List your income, expenses, and savings goals. Identify areas where you can cut back or adjust spending. This will give you a clear picture of where your money is going and where automation can make the most impact. You will go from wondering where your money is going to feeling confident that each of your dollars is working toward something.

To find out how much you have been spending, it may take sitting down with a pen and paper to go through your last few months of credit card and bank statements. Use that pen to cross out things you can cut and then go online or call to cancel them. If you are spending more than you are earning, either make cuts, increase earnings, or both. If you earn more than you spend, you’re ready to take the next step. Put some time into finding ways to increase income and decrease expenses. The size of your surplus will determine your velocity toward successfully reaching goals.

Step 3 - Set Up Automatic Payments:

Start by keeping a one-month buffer fund in your checking account. Ideally, you want a free account or even perhaps one that pays a little interest funded with direct payroll deposits. From there you can set up automating your bills. Schedule recurring payments for your rent or mortgage, utilities, insurance, and other fixed expenses. This ensures you never miss a payment and eliminates the stress of remembering due dates.

What about credit cards? If you have no credit card debt or already automatically pay them off every month, good for you. If you carry a balance on any cards, stop using them immediately. Any rewards you get are way overshadowed by interest. Any extra money in the budget should go to paying off debts. Set the minimum payments to auto-pay and apply any surplus money as extra principal payments until paid off. 

Step 4 - Automating Savings:

Once you have your bills set to auto-pay and your consumer debts are paid off, it’s time to pay yourself by setting up automated transfers to your savings. Set an emergency fund savings goal of three to six months of expenses. Use your budget from Step 2 to calculate how much you need. If your household has multiple stable sources of income, go with a lower amount. For single breadwinners or people with fluctuating incomes, you may want to save more.

Any extra income that was going toward debt can now be automatically transferred to savings. You can set this after each payday or once per month. Some payroll providers make it easy to direct deposit to multiple accounts. If you take advantage of that feature and never see the money in checking, it makes it easier to live on the remainder. This is a good time to look into a high-yield savings account (HYSA) to further distance yourself from your money and earn a little more interest.

Step 5 - Automating Investments:

Once you reach your emergency savings goal, it’s time to invest in the future. Does your employer offer a matching 401K plan? If so, be sure to sign up for that at least up to the match, and adjust your budget to account for money diverting that way. If you want to keep it simple, you can use your 401K as your only investment account. This is fine if you have good options for investing. Most feature popular index funds or competent target date plans. After the match, I suggest putting as much as possible into any available Roth option. You may want to talk to a tax advisor about what’s right for you.

From there you can either stop auto-transfers to savings or set up an investment account to draw from your savings in the amount you are already depositing. I suggest this to use the savings as a buffer and also because some institutions require regular savings transfers to keep the account open. I recommend choosing one of the top discount or free brokerages such as Fidelity, Vanguard, or Wealthfront.

Dave Ramsey says, “Match beats Roth beats Traditional,” but as long as you set up your accounts, start the auto-transfers, and budget the remainder, you will be well ahead of the masses. Be sure your deposits get invested and don’t sit in a cash fund. Simple is usually better whether you pick an age-based target date fund or an index. 

Step 6 - Use Technology to Track Spending:

Utilize budgeting apps or financial tracking tools to monitor your spending. These apps can categorize expenses and provide insights into your financial habits. By keeping a close eye on your spending patterns, you can make informed adjustments. Popular apps include Mint, Rocket Money, Dave Ramsey’s Every Dollar, and YNAB.

For me, none of these apps really worked. I did not like the process of linking and re-linking my accounts. Some even failed to link at all. For years I have been using a Google spreadsheet to track my spending. Any time I spend anything, I open up the spreadsheet on my phone or computer to log it in. It may not work for everyone, but it works like a charm for me.

Step 7 - Consolidate Accounts:

Consider consolidating accounts to simplify your financial management. Fewer accounts mean fewer statements to review and manage. This can streamline your efforts and reduce the risk of missing important financial details. Choose any institution you prefer, but I recommend having one local account at a credit union and one online bank. If you insist on using credit cards, I suggest using no more than one at a time and setting it to auto-pay in full every month. No messing around with balances allowed.

Right now SoFi has a pretty good set of products. They offer high-yield savings, a checking account that earns interest, and a credit card with strong rewards. Think of the weight off your shoulders keeping track of one account versus juggling many to save or earn a few extra dollars in rewards or travel points. SoFi even gives you rewards points for logging in to check your account daily.

Step 8 - Review and Adjust Regularly:

Automation doesn’t mean you can literally set it and forget it. Regularly review your financial statements, track progress toward your goals, and adjust your automation strategy as needed. Life changes and your financial system should adapt accordingly.

If you’re the type of person who checks accounts daily, that’s fine. If not, set a calendar reminder once per week to review finances. If you are partnered with a significant other, meet and try to talk openly. Be sure to remember Step 1 and envision your why. Have your goals changed? Are there new expenses to plan? Is everyone still on board? Ask what the other person wants to do and figure out together how to get there.

Step 9 - Emergency Preparedness:

As you automate, don’t forget to plan for emergencies. Maintain your emergency fund and pause your automation to replenish as needed. This safety net ensures you’re prepared for unexpected financial challenges. Remember that car repairs, home maintenance, holidays, birthdays, and even weddings should all be regular budget items and not emergencies.

It’s much easier to face challenges with money in the bank. If the time comes for a major expense like buying a car, a new appliance, or funding a major home repair, meet, discuss, plan, and pause. The system can be retooled to meet changing needs and if you hold regular meetings as mentioned in Step 8, a major purchase meeting will seem normal. Don’t show up Christmas morning with a new car and a bow on the hood.

Step 10 - Stay Cyber-Safe:

While automation offers convenience, it’s crucial to prioritize cybersecurity. Use strong unique passwords for your financial accounts and use two-factor authentication whenever possible. If you have trouble remembering passwords, Google and Apple provide handy reminder tools in their browsers and operating systems. You can even use a spreadsheet to track your accounts and passwords. That’s what I do.

Two-factor authentication can help if you ever get compromised, but be sure to never share your two-factor code with anyone on the phone. Keeping track of passwords is another reason for account consolidation as mentioned in Step 7. If you are ever worried about anything, a call to your institution will hopefully clear anything up.

Seek Professional Guidance When Necessary 

If you’re unsure about certain financial decisions or investment strategies, there are many professionals who can help. Beware that financial advisors want to sell you financial products, insurance agents want to sell you insurance policies, bankers want to sign you up for bank accounts, and real estate professionals want to sell you a house or sell your house. A competent tax advisor will guide you to minimize risk, and an independent financial coach like me can steer you in the right direction while keeping you motivated.

Personal finances work best when they are boring and automatic. Increasing involvement and meddling can lead to making bad decisions. Automating your finances can simplify your life and bring your peace of mind. By setting up a well-structured personal finance system, you’re taking control of your money, eliminating the risk of missed payments, and positioning yourself for financial success. Technology can be your ally, so harness its power to build a brighter financial future.

Contact me through my website to get referral links for the institutions I personally use and for a free coaching evaluation. How can I help you?

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After watching his Netflix series, I read I Will Teach You to B Rich by Ramit Sethi and learned that I already implemented his automation techniques in my money management. Personal finance works best when it's automated and boring. Setting up automation may not be enough. You might need coaching to stay on track or to get out of a bad financial situation. Contact me to set up a free coaching evaluation. How can I help you?

Coach Jeff Wagner has been a licensed mortgage loan originator, a personal banker, and a certified tax preparer. Call or text Jeff at 805-874-2829.

His opinions are not to be taken as health, financial, or investment advice but as motivation to start or continue your path toward success.