What are the things in your life that are important to you? Do you automate the important? Do you have bad habits or things you do subconsciously? What about good habits? Are there things that you do automatically that are good for you? Automation is important. Just ask the government. How many people do you think would save enough money to pay their taxes at the end of the year if they were not forced to take automatic deductions? What the government knows is that by automatically deducting the amount we owe in taxes we will actually have money to pay them (or overpay them and get a refund). Automation is important because it removes a few of the decisions we have to make on a recurring basis. We can decide once and take action then let the good decisions we’ve made continue for years to come.
I love to automate all the things I can. I prefer to live simply and if I can remove steps or make things more efficient I’ll always try. Automation streamlines many of the processes that we do consistently every week, month or year. Here are a few of the things we currently automate:
- Coffee Routine
- My Work Clothes
- Direct Deposit
It has always been easy to automate my bills and financial transactions but things like dining and health were a little trickier. One way I automate my health routine is to bring others into the equation. This is why Crossfit is so successful. Accountability and automation. They expect you do be at workouts every week and many of the decisions about what to do, which can be paralyzing, are removed from the equation. Similarly, I tend to work out best when I am meeting someone else at a consistent time every week. This process of automation helps set up and enforce a habit of exercise. I also like to sign up for high intensity sports because it is one simple mental step to sign up; then exercising every week during the games is automatic.
How much time do you spend thinking or worrying about money? I think most people find it funny when I tell them that my wife and I only spend twenty or thirty minutes total every month on our finances. How much time do you spend doing bills, budgets, dealing with emergency financial issues, looking over credit card statements, allocating, and counting money spent? I write, read and think about personal finance for hours every week, but ironically our personal finances are very simple. Why? Mostly because of our planning, consistency and automation.
How We Automate Our Finances
The first step in our automation process begins with the direct deposit of our paychecks into a joint checking account. Before we even ‘see’ the money the automation has begun. We start by having 15% (including match) of our paycheck sent to tax deferred investment accounts. We also have our health insurance (HSA) fund transferred as well as our taxes and disability insurance. Once our ‘take home’ money is deposited we use a little bit of help from our bank Capital One 360 (formally ING Direct). What makes our online banking work so well is the free use of sub-accounts. This might sound trite but you will see how useful it is in the automation process.
Stage two of the automation process is setting up automatic transfers. I get paid on the last day of every month so I schedule my transfers for the 1st (If you get paid weekly you can adjust accordingly). We setup automatic transfers for all of our major budget categories including things like savings, gifts and vacation. We have set amounts of our paycheck that go to each category. Setting up the transfers is really simple like the graphic below:
We still use an interesting combination of digital and literal envelopes for transparency in our spending. The automatic transfers, in combination with sub-accounts on Capital One, make it really easy to save for specific events or categories. For known upcoming expenses we transfer a set amount every month (like automobile maintenance and season football tickets). Having separate accounts for each area allows us to know exactly how much we have for each category.
Above is a sample of the actual categories for our sub accounts. We had accounts for our trips to Europe or India but we just closed them out after we paid for the trips. We have tried in the past to keep everything in one big checking account but it actually became too cumbersome because having a large pile of money made us feel like we had money to spend. In reality, that money often needed to be allocated to a known future expense.
The final step is setting all the bills to be paid out of the sub accounts. We have the water, power, insurance, charities, cell phone minutes and all of our bills automatically deducted. We keep an eye on the amounts to make sure there are no mistakes. If you have bills that must be paid by check (like our mortgage) Capital One will send a paper check for free automatically every month.
Automation makes cumbersome processes easier because you only have to do them once and then everything else happens automatically. It makes something that can take hours a month quite simple and effortless and the process completes itself in minutes without any additional effort. What areas of your life could use some automation? If you saved without thinking would you be in a better place a year from now? How do you automate the important?
I have worked with Capital One and they have a special offer for my readers if you use the link here. They are currently offering a limited time sign up bonus of $50 so it is one of the best checking bonuses I have seen. If the links get used up just let me know in the comments or on twitter and I can give you another link.