Recently I came across the second edition of a book in which the author freely admitted he was pressured into creating said second edition by his publisher and only relented so he could roast cryptocurrency and robo-advisors, two things that weren't around when the first edition was published in 2009.
His transparency and no-nonsense attitude immediately hooked me.
And while I think I'm maybe slightly more open-minded due to my budding experience and aware that we probably shouldn't take super hard-line stances on things as fickle as finance, this dude's premise (automating your finances) is an optimizer's dream.
You can check out the book, I Will Teach You to be Rich, here.
But if you're not into reading personal finance books in your free time (what's wrong with you?!), I'll distill the most meaningful, unique theory I implemented:
Spend time on the front-end deciding where your money should go every month, then automate all of it to work in the background of your life without you ever having to lift a finger again.
It takes all the emotion, decision-making and effort out of your long-term play. Automation makes some people uncomfortable because it means surrendering control to machines, but remember—the more decisions you leave up to yourself over time, the higher likelihood of error or oversights.
My description below reflects that of someone without any debt, so keep in mind the percentages and priorities will look different depending on your situation. In web development on my team at work, we call this a "happy path" scenario—how the most basic, optimal situation would be treated.
Clearly, you may have debt, irregular pay, and other circumstances that make this "happy path" description a little tougher to implement. There's more at the bottom for you...
How I set mine up
First piece of the equation: Take-home pay
First thing's first—determine your monthly take-home pay. If you're paid bimonthly, go to your most recent paystub (assuming it's a normal one) and look at the number after all the taxes are taken out.
E.g., if you make $50,000, you may be tempted to merely divide by 12 months to get a monthly take-home pay amount of $4,166. In reality (after taxes) you'll probably only see about $3,600, depending on where you live. Starting with an accurate cash intake is very important, because it determines what your percentages look like.
So there you are, on pay day, sitting pretty with a few thousand in your checking account you didn't have yesterday.
Unfortunately, this is where most people f*** it up.
They think, Time to spend!
Wrong. So very wrong. This is why automation is so key—it removes that temptation entirely, because you're going to set up a series of auto-transfers that send that money exactly where it needs to go.
Your investment accounts (401k, Roth IRA, other brokerage accounts) are up to bat first. The percentages are up to you.
I contribute 12% to 401(k), 11% to Roth IRA, and 9% to a regular brokerage account. Why?
I do this for diversification purposes. Yes, I COULD max out the 401(k) and intend to someday, but I want the mix of 401(k) and Roth IRA for retirement as well as a regular account to use for a home or child someday (something that isn't tied up for retirement).
So, for example, if I get paid on the 5th and 20th, 12% is taken out of the paycheck and sent directly to my 401(k), where it's matched by my company up to a certain percentage. 11% is transferred out automatically to a Roth IRA a few days later. Another 9% is transferred out a week later to the regular brokerage account.
And just like that, 32% of my take-home pay is invested twice per month.
High-yield savings accounts
Now you've got a little less than you started with (or maybe a lot less, depending on how high your income is and how aggressive you can afford to be in your investments). Now it's time to sock some away for regular savings—maybe an upcoming vacation, Christmas gifts later in the year, a flat tire, etc.
Once your emergency fund (3-6 mos. of your expenses) is full, this savings account is a little more flexible. I transfer 7% of each paycheck (automatically, in keeping with this theme) to the Capital One 360 Savings account that gets a 2% return.
This transfer happens a few days after the paycheck hits.
And there you go—automatic investing and saving, all happening in the background without me having to work up the discipline or motivation to do it after every paycheck.
So what about the money that's left?
Three words, fam: Credit card autopayments.
The money that remains in the checking account (if you're subscribing to the method and you're debt free, you'll probably have about 60-80% of the take-home pay left) is what gets used for—you guessed it—spending.
In this way, you pay Future You first. Retirement You, 5 Years From Now You, and 6 Months From Now You are totally taken care of. Whatever's left is gravy, baby.
I put all my spending on credit cards, with the exception of the 23% of my take-home pay that goes toward rent. So I set up automatic credit card payments on the due dates (mine are the 3rd, 8th, and 21st) to simply withdraw the money from checking and pay the bill on time. No memory necessary.
Because I already had a budget set up that worked for me, I knew I could keep my spending around 60% and invest or save the rest.
As the machine hums in the background...
Of course, I keep an eye on everything. I get emails when transfers are about to happen and I use Personal Capital to see all my accounts in one place, so it's not like I never check—but with a few hours of work and planning upfront, you can reduce your active involvement in your finances to effectively zero (that is, until you get a raise and pump up those contributions!).
If you're interested in individual consulting or help, there's a pretty exciting business venture in the works. It's going to look a little different than ole' katiegatti.com.
The "Personalized Finance" Contact tab in the menu is still open for inquiries, so if you'd like a little help with these decisions and planning, submit a contact form and we'll be in touch. Otherwise... happy automating.
The young woman's money guide for all the things you're too embarrassed to ask your friends. Build the life you thought you were too broke to afford through managing your spending habits, travel hacking, and simple, smart investing.
Full-time Brand marketer at Southwest Airlines, part-time Yoga Sculpt teacher, occasional Waffle House Model and reformed materialist.
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