MONEY SAVING WIN #1:
Automate your finances
One reason we don’t regularly save money is due to the pain of putting money into our savings accounts each month.
It’s the reason why cutting out lattes or skipping lunch is a terrible way to save more money.
And so, just like cutting out luscious, perfectly foamed lattes, we might put away money for savings once or twice — but if we have to make the decision EVERY paycheck, we’re setting ourselves up to fail.
That’s why automated finances work so well. You can start to dominate your finances by having your system passively do the right thing for you. Instead of thinking about saving every day — set it and forget it.
To do this, you need just one hour to follow these steps:
Step 1: Set up your bills so they’re sent to you on the 1st of the month
This is assuming you’re being paid on the first of the month. If not, just adjust the day accordingly.
Call your credit card, electric company, internet service provider, Netflix, whatever, and have them bill you on that date. This streamlines the process and allows you to know when exactly your bills need to be paid.
There may be a couple of months of odd billing as your accounts adjust, but it will smooth itself out after that.
Step 2: Set up your contributions to your 401k
Before your paycheck even arrives into your checking account, make sure that you have your 401k plan set up with your employer and that you’re at least putting in enough money to collect the employer match. It means that for every (pre-tax!) dollar you contribute your company will match that amount up to a certain percentage.
This ensures that you’re taking full advantage of what is essentially free money from your employer. Let them help you save more money for retirement.
Step 3: Automate your checking account
Once your paycheck actually arrives into your checking account, the money will now go into 4 different places:
Roth IRA: Like your 401k, you’re going to want to max it out as much as possible. The amount you are allowed to contribute goes up occasionally. Currently, you can contribute up to $5,500 each year.
Savings account: Here, you should use “sub-saving accounts” for long-term goals like your wedding, vacation, or down payment on your house (more on this later). Many banks provide the option to create smaller sub-accounts in your normal savings account — perfect for goal setting.
Credit card: Make automatic payments for recurring services like Netflix, Birchbox, and gym memberships using your credit card. Log into your credit card’s website and set up automatic payments with your checking account so your credit card bill is paid off each month. You can rest assured that you will have enough money in your checking because you’ve already set up automatic payments with everything else.
Misc. bills: These are for bills that can’t be paid off with a credit card such as rent, electric, water, and gas. Set it up so that your checking account automatically sends funds to these four areas on your bank’s website — or you can just call your bank and have them do it for you. Or you could go to the bank in person, sort out your accounts and make a new friend.