The 4 steps to automated finances

August 1, 2023

When I first started my career I was so excited to start making money.

I wrote out a budget before I even got my first paycheck.

I was blown away by how much money I was going to have left over after rent, taxes, utilities, food, student loan payments.

It was hundreds.

And I started to imagine what I would spend the money on and how much I would save.

A few months into my working career and my excitement died. There was no money left over.

Nothing left to save. Nothing left to spend.

I had spent everything.

I went back to my budget. Reworking it and seeing where I went wrong.

I was excited to start again with my shiny new budget.

And yet again by the end of the month.. I had spent everything.

This was a fun cycle I kept going through.

Finally, I learned about reverse budgeting and the power of automation.

‍

‍

How do we achieve this order?

Automate it. All of it.

Let’s set up automating your finances:

The 4 Steps to Automated Finances:

​

1. Use your employer retirement plan.

Your 401(k) or 403(b) is your best friend if you have one.

They are masters of automation.

Why?

Because the money comes out directly from your paycheck. You never see it hit your checking account.

Set up your 401(k) contribution with your employer and move on to step 2.

​

2. Send the money to other savings.

Now, once the money hits your checking, it’s important the money is sent off to do it’s job ASAP.

Don’t let it sit there long.

Depending on your financial goals, fund the rest of your savings.

Automate the transfers to your:

  • Emergency fund
  • Roth IRA
  • Taxable brokerage

​

3. Pay your bills

If you can, set up all of your bills to come out on the first of the month or if you need to split it up, align the bills with your pay days.

You can call the companies or try online and request that the pay day be moved.

Now automate your bills.

If your bills are:

  • Rent
  • Utilities
  • Subscriptions (Netflix, Spotify, etc.)
  • Car payment
  • Car insurance
  • Student loan payments

and you get paid twice/month.

You can split the bills up, so half come out the first of the month and the other half come out on the 15th.

1st of the month pay: rent, utilities, subscriptions.

15th pay: car payment, car insurance, student loan payments

​

4. Spend

Now the best part.

Once your savings are taken care of and your bills are paid everything that’s left in your account is yours to spend. Guilt-free.

This type of forced savings can be extremely helpful if you’re busy.

But be careful here.

Your spending habits have to change to accommodate this system.

If you’re spending remains the same and you go into credit card debt, then you are worse off than before.

Ease into this plan. Start small.

This will give you time to accommodate to your new income and learn how much you really can spend.

Now, I know what many of you may be thinking: sounds great for the people who have predictable income. But what about the rest of us with irregular income?

I know because I am in this category.

And when I left my 9-5 and my income became irregular I had to adjust the system a bit.

I’ll go into more detail in a later issue, but for now, this thread does a great job of explaining it:

‍