Automating your finances is one of the best ways to show a great deal of discipline and stick to a plan. My favorite part about it is once it’s all set up, you don’t have to worry about it. The initial process of setting everything up can be a little intimidating because it requires some careful evaluation of your financial situation, multiple bank accounts, and a plan. If you don’t know where to begin it can be a bit intimidating but that’s why I am here to help. Let’s dive right in!
I’m not sure if I should automate my finances or not…
Before you blow this off, consider the idea. If you’re teetering on the idea because you think you’ve got a good grasp on your bills and budget then let me see if I can help you decide…It took me a while to actually pull the trigger and do this but once I did, I did not regret it one bit!
Grab a pen and some paper and write down the answers to these questions:
- How much is my mortgage/rent (principal, interest, taxes, PMI, and if you’re renting, your flat monthly rent bill… and yes include the cents)?
- How much is my phone/cell phone bill?
- How much is my water bill?
- How much is my electric bill?
- How much is my car insurance?
- How much is my internet/tv?
- What is my weekly/monthly grocery bill?
- How much do I spend on gas for my car?
- How much do I spend on subscriptions each month (Netflix, Hulu, Disney+, Discovery+, etc)
- What is are my minimum payments on my credit cards?
- What is my total amount of credit card debt?
- What is my balance on my student loans?
- What is my monthly student loan payment?
- Are you setting aside money for an emergency fund?
- Do I have money in savings?
- Am I investing 20% of my monthly income?
If you can answer all those questions to the nearest cent without looking at your accounts then you have no use for me, go carry on your natural born prodigy. If you’re like me and couldn’t answer all those questions off the top of your head, then read on. This is for you!
Let’s organize your finances…
So now that you tried to answer those questions and have realize you have no clue. I’m going to say that your budget couple probably use some tightening up.
Create an excel sheet similar to the one I created on the left. Or if you want to download my sheet to make it easier (it has the formulas already in it) click here.
We want to organize our bills by the type, monthly amount, the due dates, autopay (yes or no) and then which account you are going to automate the calculated expenses to (Navy Federal lets me nick name my accounts).
Once you have all of your monthly expenses figured out the sheet is going to calculate what I call your “Gross total monthly expenses” (because it does not include the additional 15% you will add on for emergency funds), a 15% contribution to your emergency fund (you can change it to 10% if you want but I wanted to play it extra safe), and then as I call it your “Net Total Monthly,” which is the total of your gross monthly bills plus your 15% emergency fund contribution. I give myself $150 bi-weekly, and my wife $150 bi-weekly for personal spending. Then finally it divides that net total monthly by 2 to give you your total amount to transfer bi-weekly into your various account.
From here I went and started 5 different bank accounts, 4 checking and 1 savings as follows:
- Bills – Checking Account
- Living Expenses – Checking Account
- Misc. Expenses (aka. Emergency Fund) – Checking Account
- Personal Spending – Checking Account
- Savings – Savings Account (obviously)
The way I set mine up, I have my paychecks direct deposit into my bills account and then I set up automatic transfers twice a month for the amounts determined by the sheet. Those amounts are automatically transferred to each account and then I exercise my discipline as follows:
- Bills Account – DOES NOT GET TOUCHED. I set up autopay and leave it alone!
- Living Expenses – This account gets spent on groceries and gas for my car ONLY!
- Misc. Expenses (Emergency Fund) – This is EXACTLY what it sounds like! IT IS ONLY FOR EMERGENCIES! Flat tire, doctors appointments, speeding ticket, utility bill is a little higher than normal, etc.
- Personal Spending – This is money I get to spend on whatever I want.
- Savings – This account DOES NOT GET TOUCHED unless it is for a purpose. Example: I use this to save up for big life purchases and/or investments!
When my “Living Expenses” and Personal Spending accounts are depleted that is it! I DO NOT dip into any of the other accounts no matter what. At the end of the year, if I have money left over in my “Misc Expenses” account I invest half of it and leave the other half to carry over into the new year.
Once this system is set up with your online banking it may take up to 6 weeks for everything to balance out and start showing the results you want to see. Once things are in order and flowing you’ll begin to see your savings and available cash build up and will become more aware of your spending habits.
A great website I love to use is personalcapital.com. It’s free and links to your checking/savings accounts and any investment accounts you may have. They then track your spending habits and will compare your spending on certain things on a monthly basis; you will receive emails showing your trends for example: “this time last month you spent $200 more than this month.”
As you become more aware of your spending you’ll make better decisions about those small purchases I wrote about in my post Eliminate Your Debt & Welcome Opportunity and will be able to pay off any outstanding debt much faster than before.
Ready or not… Start now!
Whether you feel intimidated by the idea or interested but hesitant to begin, my advice is to hunker down and get started. The best way to get results is to implement a plan, any plan. You can implement this smalls steps at a time before you fully automate everything. I highly encourage taking the first step and at least organizing your finances in a spreadsheet so you know exactly what your situation is.
Comment below your thoughts or if you have your own strategies and techniques you like to implement!