How to Automate Your Savings

Solving the Avocado and Toast Conundrum

If you’ve found yourself spending too much, struggling to save for an upcoming expense (who knows, it could be a vacation!), or strapped for cash between pay cycles, don’t stress out. These are common troubles, and they’re easily remedied.

In today’s post I’ll show you how you can tackle all of these problems without using complicated budgets, expense tracking apps, monk-like levels of self-control or fancy financial tricks.

No More Avocado and Toast??

It’s become a running joke that millennials spend way too much on avo and toast (a blasphemous proposition, I know) and coffee. But rest assured, I would never prescribe that you cut down on the delicious breakfast, let alone the much needed morning pick-me-up.

Ramit Sethi (Brilliant and hilarious author of I Will Teach You to Be Rich) laments about how most finance “gurus” tell you to cut down on lattes to save money, but that’s precisely the wrong place you should be looking at if you’re trying to improve your finances.

The problem is, unless you’re a robot or have unnatural willpower, you will want to make small impulse purchases at times, but there is a way to ensure that you  can still do that without going overboard.

If you look up articles on how to increase your savings or cut down on expenditure you’ll find a wealth of information which all say pretty much the same thing. They’ll tell you to cut down on you small expenditures which apparently end up in big savings. They also advise keeping track of your expenditure using an app for example.

How many people do you know who actually stick to this? I’ve tried using an app to track every single expenditure but eventually I gave up because I kept forgetting to do it, and it was very bothersome. I eventually came up with a much simpler way to ensure that my savings were growing, while not having to worry about tracking every single dollar of expenditure.

There are a couple of ways of going about this, but I’ll show you my method and you can tweak it accordingly.

The Secret Sauce – Make Your Money Inaccessible

Or cumbersome and time consuming to access, at least.

Here’s how to do it:

  • Open an additional bank account

Keep your current bank account and open an additional one, preferably at a different bank if the interest rates are competitive. If not the same bank will do.

Another benefit of opening an account at a different bank is that you can avoid downloading the app that might come with it, which helps reduce the convenient access to that money.

  • Set up auto-transfers

Next, and here’s where the magic happens, you set up an automatic transfer of a certain amount that will go out of your main account every month and directly into your secondary account. The key is to have the discipline not to use the secondary account unless it’s an absolute emergency.

That’s why I mentioned opening the secondary account at a different bank. Doing this makes it harder for you to transfer money to your main account, thus decreasing the likelihood of you ever using it for regular expenditure.

  • Make your secondary account harder to access

Make it hard to access those funds by declining a debit card, if you really don’t think you have the willpower necessary to do this. Alternatively, accept the debit card, and leave it at home.

By doing this, you won’t need to stick to a strict budget and sweat the small stuff.

If you have a budget of $1000 per month for example, automatically transferring $200 out of that account every month allows you to stop worrying about consciously saving money. Of course, being frugal is always a good thing, but this method is more about guaranteeing a set minimum amount of savings.

If you don’t see the money in your account (because it’s already been automatically transferred), you won’t miss it. It will also give you peace of mind, knowing that you are definitely going to have an emergency fund if life suddenly decided to perform a belly-flop on you.

Let’s go back to Ramit Sethi for a second. In his book “I Will Teach You to be Rich”, he talks about something very similar to what I’ve just described above. He mentions that worrying about small decisions like having a latte vs not having a latte just to save $3 is not the point. The big stuff is what is really important. Automating your savings allows you to spend knowing that you’ve already guaranteed your savings.

That’s all for this post, and as always, leave a comment or email me and let me know your thoughts! Also, if you have your own tips, I’d love to hear it, and possibly feature it in an upcoming post.

You can check out Ramit’s blog here. It’s a fantastic resource and a lot of his content is absolutely free.

 

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Financial Freedom: Start Investing As Early As You Can

Financial Freedom: Start Investing as Early as You Can

Getting your money to work for you is essentially what investment is all about, and it’s a crucial skill to learn, especially while you’re young.

Investment doesn’t have to be complicated or even difficult. In fact, it’s possible to automate your investments so that all you’ll need to do is some minimal management. I’ll go through all of this step-by-step in the upcoming posts, but for now I’ll explain exactly why investment is so important.

Start With the End in Sight

I tend to look at the end result or the endgame before I engage in any venture, and it’s the same approach I used for investment. I usually start by looking at my goals, and then finding a way to get there. I want to have flexibility in my future and I think that investments, when done right, can provide that. This could be true for you as well, which is one of the reasons why I believe that it’s highly beneficial to learn this skill.

Let’s take a look at my long-term goals:

  • Ensure a comfortable retirement
  • Financial freedom
  • Be location independent
  • Create a passive income stream which I could possibly live off if I ever needed to

Everything on that list is about having flexibility. I would say that it’s a priority for my life, but of course, this could vary from person to person. However, if your goals are similar to mine, you’ll definitely find investment to be an invaluable tool for your future.

Retiring as a Millionaire

One of the biggest fears for many in the working class is not having enough money to retire. This is where investment comes in. The important thing to note here is that you can have almost any job and still end up retiring in comfort. In fact, I’ll write a post explaining how you could become a millionaire (at least) with very little effort.

This might sound like a plug for some kind of get-rich-quick scam, but I’ll say right now that it couldn’t be further from the truth. It will take a long time to achieve this, decades even, but it’s entirely possible to retire as a millionaire regardless of the type of job you have. However, that’s beyond the scope of this post and I’ll come back to it soon.

Of course, having a higher paying job will get you there quicker, but the point is that by learning to invest your money, you could potentially have a career doing something you love even if it doesn’t necessarily pay very well, and still end up with a sizeable nest egg.

Flexibility and Financial Freedom

Financial freedom is a priority for me because I want to be able to make decisions out of preference, and not out of need. There’s a significant distinction between the two. For example, I want to be able to travel around the world for months at a time without having to worry about where my next paycheck will come from. I also would like to be able to make career choices based on what I like doing, rather than having to buckle down and stay in one place just because I’m dependent on the salary I’m being paid.

Start Investing Early

start-investing-early

To achieve that level of freedom and flexibility, it’s very important to start as early as possible, and that’s why this post is targeted at younger people (although anyone can benefit from it) simply because the potent combination of time and compounding you more potential to amass your wealth. I simply cannot stress how important it is to start investing as early as you possibly can.

I’m going to create a mini-series of posts about investment, which will cover topics such as:

  • Compound interest
  • ETFs
  • Warren Buffett’s approach to investing
  • How to pick stocks
  • Valuing a company
  • Investment resources
  • Setting up an investment account
  • Growth vs. value
  • Strategy and when to sell

Many young people who start getting their first paychecks spend most, if not all of it, very quickly. They hardly give a moment’s thought to investing that money, but if they did, they would be much better off and possibly enjoy a secure future. Once I learned about investing, I began to look at my expenditure in a new light.

This didn’t mean that I started obsessively saving money. Instead, I began to think in terms of opportunity cost and started spending on things I valued, while cutting down on things I valued a lot less. I go into much more detail about this in “A Simple Hack to Transform the Way You Spend“.

I’ll leave it at that for now, but follow along with the series and hopefully you’ll be able to confidently make your first investment and begin taking your first steps towards financial freedom.