Alright, people, I’ve touched a bit on the importance of automating your finances. It’s one of the foundational principles of what I teach clients. Since it is so central to what I advise, I thought it warranted a longer, more in-depth post.
If you’ve been reading my blog for awhile, you know that I’m married and have three little girls. I also have a big family that I’m close with, a thriving business and I’m launching a podcast. I also take care to exercise frequently. These are all amazing things, but if I keep it real, it’s a huge understatement to say I’m busy. I am mostly running between activities, super strategic about how I spend my time, and I’m fortunately blessed with natural energy which helps a ton. My mother-in-law actually calls me the Tasmanian devil after seeing me in action from morning to night when Suleyman and I first got married. Long story short, things get hectic in the Konte household and ain’t nobody got time to constantly reevaluate everything we’re doing. Finances are no exception to that.
When I first started working I used to sit down and look at my income, expenses and plan my savings every month. Let’s just say that I made little to no progress for a long time because I was overly aggressive in my goals and because my system depended upon me taking the time to calculate what I could save that month. That changed dramatically once I shifted from a manual process to an automated one. I’ve made measurable progress in my financial goals, and have seen this work very powerfully for my clients over the years. So let’s dig into it– why it works, how to do it, and how to assess your progress.
I really believe in the power of discipline and routines. I first discovered this a few years ago when I first got into fitness. I can’t recall where I read it, but it basically said that if you have a routine you will be infinitely more successful at achieving your goals. For example, if you want to make a goal of exercising every day, you need to make it as automatic as brushing your teeth. You never wonder whether you should brush your teeth today, do you? Well, the action which brings you closer to your goal should be just as much of a no-brainer and as automatic as that. I’ve applied this to my fitness goals, and I’ve seen significant improvement in my consistency. See the pattern here?
Your finances are no different. By automating your savings or debt-reduction goals every month, you effectively remove the need for discipline and overcome your limited willpower. It also helps you take advantage of that momentary impulse/motivation you get every now and again a la “I need to save more money!” Take the time in that moment to calculate what you’re going to apply towards that goal, set it up and forget about it!
So let’s say you want to pay off your student loans in 3 years. Visit one of these handy dandy calculators and calculate how much additional you will need to pay every month in order to pay it off in 36 months. Then, visit your loan servicer’s website and set up your monthly payments to auto-draft for the minimum amount + your additional principal payments. So if the calculator says you need to pay $100 additional per month and your minimum payment is $320, you should set the automatic payments up for $420/month.
From a practical standpoint, this means you need to set up automatic payments or ACH bank transfers to hit on the same day every month. I think it’s most helpful to have the transfer happen 1-2 days after each pay period to ensure the funds aren’t inadvertently spent. Out of sight, out of mind right?
This system can work for investing, saving for retirement, education savings and more. Basically, it helps for any financial goal you have. Why not give it a try? The worst you can do is cancel the automatic payments/transfers after a few months. I’m willing to bet you won’t though because you’ll be so pleased that you’re making progress towards your goals AND you rarely need to think about them.