Are you saving as much as you would like?
Are you funding your retirement plans (401k, Roth IRA, IRA)?
Are you putting money aside for those big purchases you know you have to make in the future such as a down payment on a home or an upcoming wedding?
Are you still manually writing checks to pay your bills each month?
Don’t worry, if you aren’t saving enough money, funding your retirements account, setting money aside to purchase a home and you’re spending hours each week managing your bills you are not along. If this sounds like your current financial situation you are like many other Americans these days in this tough economy.
That being said, I want to assure you that with some planning and a few small changes you can set up your finances virtually on autopilot. By automating your finances you’re taking budgets and willpower out of the equation and you will be setting yourself up for a future of happy financial times.
Putting your finance on autopilot is one of the smartest decisions you can make. It’s the “set it and forget it” approach to growing your net worth and saving for life events like weddings, college tuition, vacations, purchasing a home, purchasing an investment property, etc.
I was first introduced to the powers of automating your finances right as I was starting my first job out of college in 2005 when I read The Automatic Millionaire. The book details a story of a low-level manager and a beautician whose joint household income never exceeds $55,00 per year. Yet, somehow they manage to retire at 55 owning two homes free and clear, have put their two children through college and have amassed more than $1 million in savings. Not bad, not bad at all!
What I learned is that the best way to stick to a budget was to not have a budget at all! If you automate your finances and begin to pay yourself first you will automatically secure your financial future while paying your day to day living expenses.
Pay Yourself First
The concept of paying yourself first is simple and makes a lot of sense if you think about it. You go to work and earn a certain income which you then turn around and pay out to various places such as your rent or mortgage, car payment, insurance premiums, food and entertainment as some examples. Typically when you get to the end of the money there isn’t any left for you! This method means that you’re basically working for all of those other people who you are paying each and every month.
What I want you to do is starting prioritizing yourself above everyone else. After all, you’re worth it! By setting up your finances so that 10% goes into a separate savings account before you start paying your bills each month you are guaranteeing that you are going to save 10% of your income each year. You might need to change the percentage based on your current finances but really try to automatically send 5%, or more, into your “pay yourself first” savings account.
How To Pay Yourself First
Most employers these days offer direct deposit. What most people may not know is that you can typically get your paycheck deposited into two (or more) different account automatically.
Just check with with your HR or payroll department to see if you’re able to split your direct deposit into two different account right at the source: your paycheck.
If you are able to split your paycheck up into multiple account through your employer then you should set up a Capital One 360 account and have 10% of your paycheck automatically deposited into your “pay yourself first” Capital One 360 savings account.
If you are not able to split your paycheck into multiple accounts then you’re still going to want to get yourself a Capital One 360 account so you can set up your own automated savings plan.
Once you log into your account just click on the “Automatic Savings Plan” link as shown below:
Then all you need to do is fill in the details with the dollar amount (you can’t make it a percentage. So if you make $2,500 every pay period (assuming twice per month) and want to pay yourself first just enter $250 as the amount.
Select the account you want the money to come from (you can easily link your external bank account), select the account you want it to go into (you can give your Capital One 360 accounts nicknames and I suggest you call it “Paying Myself First Savings”), add a memo (I like to put “Paying Myself First”), select the frequency (you want to do this the day after your paycheck hits your account), add a start date but DO NOT enter and end date (you want this to go on forever)! Here is what it will look like:
Once all the info has been entered, just click “continue” and you’ll be all set up on an automated savings plan to pay yourself first. Big congrats to you!
Sub-Accounts & Savings Buckets
Since accounts are free at Capital One 360 you can open up as many as you want. You can also give them nicknames to make it easy to remember which is which.
By doing this you can easily set up your account to create multiple sub-account or savings buckets where you can save for a specific event in your life like purchasing a home, getting married, buying a vehicle or even going on vacation.
I recommend that you set some savings goals and set up a corresponding savings account and automatic savings plan to reach your goals. Funding these various savings buckets can come from your paycheck or the 5%-10% that you paid yourself. Obviously, if you’re able to, you will save more in the long run if you’re able to funnel more money from paycheck into your various savings buckets without having to dip into the “pay yourself first” savings account.
If you are not familiar with the 401k plan offered through work make sure you setup an appointment with HR to go over your company’s plan as soon as possible.
Most companies offer some sort of savings match when you automatically contribute to your 401k. A typical plan might be that they will match 50% up to 6%. Essentially this means that if you put 6% of your paycheck into your 401k, your employer will add 3% to your 401k contribution. (Example: if you make $2,500 bi-weekly, at 6% you will be contributing $150 to your 401k. By doing this, your company will add 75% to this total.)
If you’re not contributing enough to max out your company’s 401k contribution I suggest you do everything possible to take advantage of this instant return on your money. Where else can you put $150 into something and automatically get an extra $75?
Obviously, if you’re able to contribute more or even max out your 401k each year you will likely reach your savings goals a lot sooner.
Paying Your Bill & Monthly Expenses
We all have them and they are no fun to pay each and every month. But missing a payment can severely hurt your credit score and cost you a lot more down the road when you are buying a home.
The best way, that I’ve found, to manage these is by paying as many expenses as possible on my travel rewards credit card. By doing this, I now only have one bill to manage each month. I’m also earning airline points can lead to free flights down the road.
There might be some bills that you cannot pay with a credit card (property taxes in some cities). For those expenses see if you are able to set up automatic withdrawals from your bank account so you do not have to write a check each and every month.
Conclusion: It’s Time To Automate Your Finances
Automating my finances back in 2005 was one of the best decisions I have ever made. It took me an hour or two to set up my automated savings plan and that small investment in time has paid for itself many times over in the years since setting it up.
Go ahead, click here to sign up for a Capital One 360 savings account and set your finances on autopilot. You might just be very pleasantly surprised with how much more money you will be savings.