The Case for Automation
I’ve said this before, and I’ll say it again:
INVEST, SAVE, OR SPEND EVERY DOLLAR (IN THAT ORDER)
Conventional wisdom says “you need to budget” your money. Then there’s the wisdom of those against budgets and their argument often goes like this: each January 1st, you tell yourself “I’m going to budget better,” but then your friends invite you to a restaurant and a few drinks and dinners later you give up on your budget because it’s unrealistic. I’d argue these people aren’t against budgets, they are just against bad plans. I’ll make the case that automation is the way to make your budget work.
Conventional budgets to me are too restrictive. That doesn’t mean you can’t have restrictions; you’ll have to figure out what works for you. For me, I am pretty unrestrictive, but I have a VERY good understanding of how much total money I can spend each month. I limit my maximum spending each month, but I don’t really care about how it is spent, and I’ll explain why shortly. “But how do you ensure you have enough left over each month?” The key is what’s in the parentheses: it’s my “leftover” money after automation.
HERE’S HOW I DO IT
- I automatically pay myself first. With every paycheck I have an automatic deposit to my wife’s Roth IRA, my Roth IRA, a non-retirement investment account, and my daughter’s 529 education savings plan. The rest goes to my checking account (and before I was this established, I had an automatic deposit going to an “emergency” and a “savings” fund that I now feel like are at levels not warranting more contribution).
- I automatically pay all my bills on time. Literally every bill I pay is on autopilot and I track it to ensure accuracy with Quicken (previously Excel) to predict how much of my money is “leftover” for me to spend. Everything from my electric bill to the money I donate to my church each week is automatically paid. This minimizes my need for cash, which means I am able to track things even easier with the electronic record in my checking account or with my credit cards. This also reduces my ATM fees or careless spending.
- I consciously spend on things I need. Groceries, gasoline, haircuts, hygiene products, etc., are all things I know I need to buy. I choose generic, store-brand items where it’s practical to do so, and I try to buy in bulk to reduce cost as well.
- I consciously spend on things I want… and I understand the difference between needs and wants. With all my savings and bills taken care of each paycheck, the rest was left for me to spend guilt free! To be clear, this doesn’t mean I have a limitless supply of money. It just means that I don’t have to fret over buying a nice cut of steak that will take my normal grocery costs from $300 that month to $320. I don’t sweat it because I update it in Quicken and see that I only have a limited amount of money remaining and adjust accordingly: perhaps I don’t go out to dinner that week or we don’t buy my wife a new dress that month. But, I have the flexibility to spend it how I want and when I want, so as long as I have ALL of my savings and bills already paid. And because they are all on auto-pay and auto-deposit, they are always paid!
I hope my advice works for you! Some people live and swear by budgets, and to them, I give them credit! They have more discipline, rigidity, and willpower than most; for me, I make all the hard parts (making sure all the savings and bills are paid) easy by automatic deposits and payments, respectively. Leave a comment below!