October 29th, 2012

Master Your Money in 1 Hour Per Month

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Master Your Money in 1 Hour Per Month

Ramit Sethi is the New York Times best-selling author of the book I Will Teach You to Be Rich. In this three-part blog series, Ramit will teach us how to optimize our finances. This week: How to Master Your Money in 1 Hour Per Month.

How many experts have you heard tell you to “keep a budget”? Why don’t they ever acknowledge that almost nobody keeps a budget consistently?

After all, why would we? Keeping a budget makes us feel bad about our purchases. Even worse, it’s backwards-looking, which means we simply look at our spending, shrug, and say, “I guess I spent that much.”

“Keep a budget” is the kind of advice personal-finance writers love to write…but few people actually follow.

On my blog, I Will Teach You To Be Rich, I spent years developing a system and testing it with hundreds of thousands of readers.

Today, I’ll show you the actual system, which will help you automate your money so it goes where it needs to go — to savings, investment, and even guilt-free spending. You’ll be in total control, but using this system, you can spend less than 1 hour/month on your finances.

Why automate?

How many times have you said, “If I just try harder, I could save $100/month?” (Or similarly, “if I just try harder, I should be able to lose those last 10 lbs?”)

What psychologists know is that willpower is a limited, finite resource. While our culture celebrates “trying harder,” using systems to make up for our limited willpower is one key to true behavioral change.

As Scott Adams says, “Losers have goals. Winners have systems.”

Imagine you come home from work, tired. Are you really going to want to enter in your purchases from last week? Or if you feel guilty about overspending on a new coat or a weekend trip, what’s the natural thing to do? “Yeah, I probably shouldn’t have done that…ugh…ok, I’ll be better next month.”

The truth is, an automatic system can make this a thing of the past. When you set up an “automatic money flow,” you will…

  • Set your money to automatically fill up your savings account and investment accounts without doing any additional work.
  • Give yourself guilt-free spending money, so if you want to buy a $200 pair of shoes (and you can afford it), you can do it — guilt-free!
  • Let yourself focus on the things that really matter — family, friends, your career, or whatever you want — instead of using our limited willpower on paying bills.

You’ll still have total control — but this system will just work…automatically.

Here’s how to set it up.

How to set up your “automatic money flow”

Let’s pretend you make $100/month (for easy math). If I asked you where your next $100 paycheck would go, would you know?

Most people shrug and say, “I dunno…to my checking account, I guess.”

By the end of this post, you’ll know exactly where it will go — and it will happen, automatically.

Here’s the basic automation money flow, which lets your money fill up your savings account, investment account, pay off bills, leaving you with guilt-free spending money.

Automating Your Money

 

I put together a video to demonstrate how it works. Check it out:

 

Step 1: Link all of your accounts

Where the Money Flows

 

This describes the details in the video. Get the accounts on the left to “feed” the accounts on the right so your money flow is working. It’s like laying down the pipes for a new house.

Step 2: Get all your bills to come due on same date. This is important but few people do it. It’s easy: Just call your credit card and any billers and ask them to change the billing date, ideally to the first of the month.

Step 3: Set up automatic transfers. Now, automate it. Use this guideline.

When the Money Flows

 

Step 4: How to monitor your new system on 1 hour a month. People sometimes worry that automating their money will make them lose control. “I like to see all my bills!” they say. Don’t worry. With this system, you’ll still see all your bills…they’ll just pay themselves automatically.

I like to do a review of my bills on the 5th of the month to make sure my bills are being paid correctly. It takes less than 5 minutes.

This is the basic system. Once you have this set up, you can spend less than an hour per month on your finances…and still ensure that you’re hitting your savings goals, investment goals, and have money left over for guilt-free spending.

Tweaking the system for you.

There are lots of additional tweaks you can make. For example, if you make irregular income (e.g., as a salesperson on commission), you can slightly alter this system to work for you. This system also works great for people who want make extra money on the side. All your freelance income goes right into your automated money flow. You can also protect against unexpected expenses. I cover these tweaks in my book, I Will Teach You To Be Rich.

Ramit Sethi is the author of the New York Times bestseller, I Will Teach You To Be Rich. To get free word-for-word negotiation scripts and techniques to beat your credit cards, sign up for free at iwillteachyoutoberich.com.

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6 Comments

  1. In the diagram how do you have 95% left after contributing 5% to savings and 5% to Roth IRA? 90% perhaps?

    Jay at 11:25 am on October 29, 2012
  2. This is a great post Ramit. I have been taking baby steps toward automating my money and I like where it is heading. I still have a few more steps to take before I am fully automated, but I love how easy it is. As long as you know where it is all going, then anyone can do this and be successful with it.

    Grayson @ Debt RoundUp at 11:56 am on October 29, 2012
  3. I think the idea is the 95% is what’s left after the contribution to your 401k. That should be taken out first, after taxes of course. Out of the leftover 95% you’ll send 5% to your savings and 5% to your Roth IRA, leaving 85% for bills and living expenses. So, the math works out.

    bethy at 2:46 pm on October 29, 2012

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