I don’t know about you, but a lot of my money management issues stem from trusting myself a little too much (haha). If I see the funds in my bank account I think that’s actually how much money I have, yet tend to forget about which bills are coming due and when before the next payday. And forget about saving. If it doesn’t happen automatically I take no joy in shifting leftover funds into a savings account. So my solution is to get the bill paying and saving out of the way each payday before I even look at my checking account, which is my Step 2 in building financial health.
Step 2: Automate Your Budget
Now, one thing I want you to note is that the steps below can be done when you’re comfortable with your budget and your cash flow. If you need to build a cushion into your checking account before setting up automatic payments (like I did), then do so, but I strongly urge you to take these steps as soon as financially possible…they’ll save you headaches and maybe even some money.
- Save for Retirement At Least Up to Company Match – the first thing you can do to easily save more money is deduct a percentage of your paycheck to your company’s retirement fund up to the amount that your company matches. That match is free money. For example, my organization matches up to 5%. So when I deduct 5% of my gross pay into our 403(b) I get 5% more money from my company for free, basically. And my org is extra special because I’m 100% vested right away – sometimes the company requires that you stay on the job at least 2-5 years in order to get that full 5% or they take it back when you quit. It’s worth reading the fine print. And it’s worth automatically deducting this amount every month and beginning your budget there.
- Auto-Deduct Into Savings Account – this is a step you may want to hold off on until you make sure your budget works every month, but the age old question of “Should I save or should I pay off debt?” is answered best with, “Yes.” Start a savings account as soon as possible and shift even a small amount each paycheck. I started with $50 and then increase it by $25 every year when I get a cost-of-living increase. When I first started and had to get my feet under me I had to raid my savings a few times, but now that I have a cushion built up in my cash flow it’s incredibly satisfying to see this number tic up every two weeks. Seriously, the person who figures out how to gamify personal finance will be the next Silicon Valley tech millionaire.
- Auto-Pay Debt – if, like me, you have some outstanding debt (student loans, credit card, etc) try to pay as much as you can each month beyond the minimum payments. Anything beyond the minimum will save you in interest. This is another great place to set up auto-payments so you don’t have to worry about making a late payment, racking up fees, or taking hits to your credit score. Sometimes you can even get a break on your interest rate if you set up Auto-Pay. For example, my student loan lender knocked off half a percent.
- Auto-Pay Bills – another great place to set up auto-payments is on all of your bills (rent/mortgage, utilities, etc). Online payment services for these accounts usually charge a transaction fee for using a credit card but will remove the fee if you do a bank transfer. If you pay by check you’re paying for postage every time. As my grandma always said, “Watch your pennies and the dollars will take care of themselves.” The other important tip I have for you in this regard is to set up a second checking account for bill payments and, every paycheck, auto-deduct your budgeted amount into this account. Pay your bills from here and your other checking account turns into spending money. Right now, for example, I take my rent and utility costs for the month, halve it (because I get paid twice monthly), and have that amount get redirected to my Bills checking account every payday. Makes knowing what I can spend on food and sundries much easier to visualize.
- Auto-Save/Invest – so I shared some tips about auto-payments and auto-saving, but one other trick I’d like to share is auto-investing. You’re not a hedge fund manager. I get it. None of us are billionaires. But we can take advantage of stock market investing at a small scale using the Acorns app. When you download the app and connect a card and/or bank account, Acorns simply rounds up every purchase to the nearest dollar and invests it for you. You never even miss it. Some banks will do this for you and automatically round up into your savings account, but I find it’s a lot of fun to have a small investment account and see that graph steadily increasing every month. For the time I’ve been using it, my account and the investment fund have seen a 5.46% return. I’ve been using Acorns for about 7 months now and have $400+ in my account. And the great thing about the account is that I can divest and transfer the money into my bank account any time I need it. Right now I’m having too much fun watching it grow, but it could be a good rainy day fund as it’s pretty easy to liquidate (the transaction takes 4-5 days). Acorns also partners with a few sites where you can spend money and a percentage of what you spend goes into your Acorns investing account. For example, if you book an AirBNB, a percentage of the total booking cost is invested, and if you sign up for Hulu a percentage of your subscription fee gets invested, etc. The beauty of affiliate marketing.