The easiest way to ensure your financial success is to automate your finances, which is simple to say but not so simple to do.
Here?s how to start:
Automating your finances involves setting up computerized systems to take deposits, payments, investments and other transactions out of your hands ? or at least out of your day-to-day thoughts.
Here?s what you should automate:
? Depositing your paycheck. Your paycheck, via direct deposit from your employer or bank, will go directly into a specific savings account. From there, you can set up automatic delegations that will send funds to other accounts.
? Bills. Paying on time your pre-negotiated bills ? rent, electricity, gym memberships, insurance, subscriptions and so forth ? every month is a prerequisite for financial health. Set up automatic transfers into a checking account for these bills. I suggest naming the account ?yesterday?s promises? because you already agreed to pay these bills.
For bills that vary in amount from month to month, like electricity and gas, set up minimum auto-payments that are approximately equal to your highest monthly bill from each vendor. Edit the amount each month if you remember to. If you forget, you?ll build a credit balance with the vendor.
? Other accounts. After setting up your promises account, calculate how much money remains from your paycheck. Decide how much of that remainder goes to short- and long-term savings.
The first account is for when life throws you curve balls; some refer to it as an emergency savings account. This account holds three to six months? worth of my expenses. Once you reach that balance, you stop transferring money into that account.
Now set up your auto-transfers into the various other accounts. Assuming that your retirement savings accounts are either your employer-sponsored 401(k) or at a different institution from your retail bank, set up your maximum retirement account savings first.
Your other savings accounts go toward such expenses as a new car, auto repair and maintenance, or a vacation, as their names indicate.
Your final auto-transfer goes into a checking account named ?today?s fun,? which is for your discretionary spending on groceries, meals out, food, gas and incidentals. Do not decide how much goes to discretionary spending first ? that puts spending before savings, which is bad.
When this account hits zero, you spend nothing else. Funds allocated to your savings accounts stay there regardless of whether you prefer an extra night out.
If you follow this process, you get the picture of another prerequisite for financial health: securing the lowest monthly obligation possible. Rent well below your financial ability, pay cash for cars instead of taking out loans and don?t sign up for obligations that hamper your choices between that expense and another each month.
Your financial health then improves automatically.