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When it comes to paying off debt, most people focus on cutting out small items, like lattes. But it’s the BIG WINS that matter most, according to author of The New York Times best-selling book and blog I Will Teach You To Be Rich, Ramit Sethi. For example, he points out that when buying a house, the difference between someone with good credit vs. bad credit is over $100,000. How many lattes is that worth?
The trick to saving more is not willpower – but automation. Automation is a key fundamental in money management that will actually increase your credit score. Because with just one missed payment, your credit score can drop as much as 100 points.
Automation also lets you enjoy those small things you love, like lattes or designer jeans, while ensuring that your savings account automatically grows each month.
Ramit shares his 5 steps to creating an Automatic Money Flow to managing your finances:
1.List your accounts in one place.
To set up, compile a complete list of all your accounts, their URLs, the logins and passwords. Ramit recommends 1Password to store this information.
2.Link your accounts.
Log into each account and link you accounts together to set up automatic transfers from one account to another by using the “Link Accounts,” “Transfer,” or “Set Up Payments” options. Connect your paycheck to your 401(k), so it’s automatically funded each month; your checking account to your savings account; your checking account to your investment account/Roth IRA; your credit card to any bills you’ve been paying by using your checking account. Link bills that can’t be paid by credit card, like rent and loans, to your checking account and use the bill-pay feature. Have all your credit card accounts paid from your checking account. The links are free and electronic, but allow three to five days for the accounts to verify the links.
3.Organize and consolidate your billing dates.
You’ll want to reset your billings cycles to create a well-timed Automatic Money Flow. Gather all of your bills and call up the companies to switch your billing dates. Most of these will only take five minutes to do, but once it is done all of your bills will arrive at the same time, and you can now go into your accounts and set up your transfers.
4.Set up your automatic transfers.
Once your accounts are linked together, set up the core of your Automatic Money Flow: automatic transfers and payments. Work with each individual account’s website to make sure your payment or transfer is set up for the amount you want and on the date you want.
5.Tweak the system.
You may need to adjust your Automatic Money Flow to match your payment schedule. If you have irregular income, making your accounts automatic could be harder to do, as the amount in your accounts will fluctuate. Decide what you need to live on, and add a savings goal of three months. Once you have saved up for three months, you may start investing your money into other accounts.
Now your money management is on autopilot. Not only are your bills paid automatically and on time, but you’re actually saving and investing money each month. It works without your involvement and it’s flexible enough to add or remove account any time. You’re accumulating money by default.
About The Author: Ramit Sethi
Ramit’s automation system has helped thousands of people automate and get on with their life so they can live a rich life by focusing on the things that matter. Ramit is regularly featured in The New York Times and The Wall Street Journal. He has been a regular guest on ABC and has appeared on The Today Show and NPR.
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