Automatic Money Flow
Case study: Michelles Automation System
To see how this will work, lets use Michelle as an example:
Michelle gets paid once a month. Her employer deducts 5 percent of her pay automatically and puts it in her 401(k). The rest of Michelles paycheck goes to her checking account by direct deposit.
About a day later, her Automatic Money Flow begins transferring money out of her checking account. Her Roth IRA retirement account will pull 5 percent of her salary for itself. Her savings account will pull 5 percent, automatically breaking that money into chunks: 2 percent for a wedding sub-account, 2 percent to a house down-payment sub-account, and 1% for an upcoming vacation. (That takes care of her monthly savings goals.)
Her system also automatically pays her fixed costs like Netflix, cable, and insurance. Shes set it up so that most of her subscriptions and bills are paid by her credit card. Some of her bills cant be put on credit cardsfor example, utilities and loansso theyre automatically paid out of her checking account. Finally, shes automatically e-mailed a copy of her credit card bill for a monthly five-minute review. After shes reviewed it, the bill is also paid from her checking account.
The money that remains in her account is used for guilt-free spending money.
To make sure she doesnt overspend, shes focused on two big wins: eating out and spending money on clothes.
She sets alerts in her Mint account if she goes over her spending goals, and she keeps a reserve of $500 in her checking account just in case. (The couple of times she went over her spending, she paid herself back using her unexpected expenses money from her sub-savings account.) To track spending more easily, she uses her credit card as much as possible to pay for all of her fun stuff. If she uses cash for cabs or coffee, she keeps the receipts and tries to enter them into Mint as often as possible.
In the middle of the month, Michelles calendar reminds her to check her Mint account to make sure shes within her limits for her spending money. If shes doing fine, she gets on with her life. If shes over her limit, she decides what she needs to cut back on to stay on track for the month. Luckily, she has fifteen days to get it right, and by politely passing on an invitation to dine out she gets back on track.
By the end of the month, shes spent less than two hours
monitoring her finances, yet shes invested 10 percent, saved 5 percent (in
sub-buckets for her wedding and down payment), paid all of her bills on time,
paid off her credit card in full, and spent exactly what she wanted to spend.
She had to say no only once, and it was no big deal. In fact, none of it was.
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