Ramit Sethi walks through automating your money flow: move bills to the 1st, use 1Password, automate 401(k) contributions, and set up auto-transfers to savings and investments. Automation cuts your monthly money work from hours to under two hours and eliminates overdrafts and late fees.
Questions this video answers
1Password.
From about 35% to over 90%.
Now: less than about two hours per month; Before: at least 10 hours per week.
Chapters
Hello everyone. Welcome to Good Money, your trusted source for personal finance advice. I'm Meg Oliver in New York. Managing money, if you're like most of us, it's not something you do for fun. Maybe you procrastinate and put it on your to do list. If it's a dreaded task for you, why not automate your money? My next guest, Ramit Sethi is our personal finance contributor and author of I will teach you to be rich. He's here to help us create what he calls an automatic money flow to make managing your money simpler and stress free. Welcome, Ramit.
Hey Meg, thanks for having me.
Alright, this sounds pretty good. So why is creating an automatic money flow important when it comes to managing money?
Think about people that we know that seem to be in complete control of their money. You know, every month they're investing, they're saving, they're spending on the things they love, but they never seem to be worried for some reason about their money. How do they do it? It's not that they're smarter than anyone else. One of the most fundamental things you can do is set up an automatic money flow so that each month your paycheck goes exactly where it needs to go.
All right, so that's the key basically is to make your decisions automatic.
That's right.
All right. Now there are steps people should take once you decide to automatic. First get your bills to be sent all on the first of the month. Is that possible?
It is possible. It's actually pretty easy. You call up your all your bills, your credit card, gym, cable, whoever it is, and you say, look, I noticed that I'm being billed on the 17th of the month, I'd like to switch that to the first of the month and it'll take you just an afternoon to do. And the reason this is so important is that it prevents you from getting any overdraft or late fees. It's critical to do.
All right, that's really important. Now keeping track of all of these accounts and the passwords alone is a huge task. Are there any useful tools to help stay organized?
Ton of them. My favorite, the one I use myself is a tool called 1Password. And what this does, it lets you just put all your passwords into this one secure program and from then on you never have to worry about what password, what login do you need. It's all just there for you automatically.
And how often do you have to change it.
Some of these places will recommend every six to 12 months. It's not a big deal.
All right, now after your bills are organized, the automating begins. And first is automating your paycheck so funds are sent to your 401k. Why is this important?
Okay, so this is so important. Now, one of my favorite studies is a study where researchers went in, they looked at how people were contributing to their 401k, and about 35% of people were doing it, which is okay, but then they made it automatic. Okay? And what happened is that number skyrocketed to over 90%. In other words, right now you're watching me, you're saying, you know, I like this guy's shirt. You know, maybe his advice is, alright, but two weeks from now, you're not going to remember. And two months from now, you know, everyone's going to be sitting around watching Jersey Shore, not thinking about our finances. So it's critical to set up an automatic finance system that will work for you when you forget about this stuff and go on living life.
Alright, Jersey Shore, your finances doesn't really come together, does it? Okay, so how do you link your PayCheck and your 401k investment account then?
It's not hard. You know, you can go to your HR person and you can just say, look, I want to contribute to my 401k, what do I need to know? And they're just going to ask you two things. Number one, how much do you want to contribute? And number two, where do you want that money to go? And they have this paperwork. It's very nice, it's very easy. Take you about an hour to do.
All right, so now you've got the 401 squared away, you say the rest should go into the checking account and from there transfer to two different places automatically. Where exactly should you go exactly?
So your checking account. Think of it like your email inbox. All your money's gonna come there, it's gonna be filtered and sent to the right places. The first place you wanna send your money is to your investment account, like a Roth ira. This is money that you don't need for a long time. Okay, so this is money that you're gonna put away for the next 20 or 30 years, every month, just contributing 100 bucks, 200 bucks, 500 bucks, whatever that number is. The second place is a savings account and this is for money that you need in the next one to five years. For me, I even create sub savings accounts for really specific goals like a wedd payment, that kind of thing.
Okay, now our last step, which is a pretty important one, and that is to set up automatic transfer to pay off your credit card. This sounds like a brilliant idea. How do you go about approaching this?
Well, I like to spend as much as possible on my credit card so I can accrue these miles and cash back and I can also track my spending. But then how do you get that credit card paid off? What you do is you log into your credit card and you instruct it to draw money from your checking account. Remember your email inbox? Draw money and pay itself off every month. Now you can tell it to pay itself off in full, which I would recommend, but if you can't afford that, you can instruct it to pay off some certain amount that you can afford every single month.
And if you're not a disciplined person when it comes to finances, that has got to be very helpful.
Absolutely.
Alright, then there are the miscellaneous bills as well.
Right. So there's some bills that you actually still have to write a manual check for, which I don't know about you, it drives me nuts. I hate writing checks. And so one of the things that you can do now is you can actually issue an automatic check every month. So for example, let's say you're renting and you have a landlord and the check is due on of the month. What you can do is log into your bank and just say, I want a check of this amount written to this person and I want it sent on the 26th of every month. And then from now on, you never have to write a check again.
Oh, that would be very nice. Okay, now what about if the recipient doesn't accept automatic payments or even credit cards?
So same thing, you can send a check over to them. You can either do it by hand if you really like writing checks for some reason, or you can just automate it through your bank.
Okay, so even with my lawn care guy who I know he only takes checks or cash, I can probably work that through as well.
You can automate it so you can track it and you don't have to worry about it ever again.
All right, now how much time has this saved you in your daily life, would you say?
Well, you know, I spend less than about two hours a month on my finances and everything runs smoothly and automatically.
Alright, and then before you did all of this?
Oh, I mean, I was spending, I was spending at least 10 hours a week doing stuff, but I was spending probably double that. Just worrying, am I late on my bills? Did I miss something? Is my credit going to get hit? So it's really saved me more than time. It saved me worry.
