đââïžHow to Automate Personal Finance: Start with your Paycheck.
Are you always wondering why your credit card bills are always high? You feel like you made a few purchases here and there but, in the end, the bills seem so high. You feel lost where is your money going and why are you not able to save and invest more? You are not alone, many of us are constantly thinking about our life expenses and spending some extra for fun. But what If there was a way where you wouldnât have to worry much about money and you had more control over it before itâs gone? Are you ready to find out how?
The answer couldnât be any simpler than automation. Automate your personal finances. Give your every dollar a home and spread your paycheck into 3 buckets. Put your paycheck on autopilot mode and let that money go into 3 simple buckets: Essential musts, savings for your short-term goals, and investing for retirement. Using this automated system you could reach your goals faster, beat the so-called rat race, worry less about money, and be well off to achieving your financial dreams.Â
The 3-Bucket Strategy: Keep it Simple đȘŁđȘŁđȘŁ
Simple and flexible thatâs the idea to keep your finances in check with the 3-bucket strategy. You donât have to break a sweat and read financial jargon or solve complex math here. All you need is to categorize your spending needs and habits. Letâs break it down:
đȘŁBucket 1ïžâŁ: Essentials (50%)
Start with essentials, the must of life. This category is common to all of us. We all need a roof to stay under, mouths to feed, and insurance for medical needs. I have created a savings account just for essentials and I transfer 50% of my paycheck directly into this essential savings account.
Some of the essentials are:
- Mortgage/Rent: One of the biggest monthly needs for most of us, and having a set amount automatically transferred ensures that you donât miss a payment and do not worry about late fees.
- Utilities: the daily needs- electricity, water, gas, and internet. You donât wanna live without the internet for sure. The savings account guarantees that you have uninterrupted services
- Groceries: You canât even negotiate this expense, and knowing how much you spend and should spend on groceries will help you budget better in the future.
- Health insurance: This is crucial for unexpected medical needs. Having it automated ensures you’re always covered and avoids the risk of lapses in coverage.
"Do not save what is left after spending, but spend what is left after saving."
Advantages of having a savings account for essential needs:
- Peace of mind: a reserved fund for your familyâs essential needs can give you immense peace of mind. It makes me feel secure that my familyâs needs are covered.
- Helps you stay below your means: a dedicated account for your musts will keep you from making unwanted purchases. It keeps you under check and removes the temptation of spending that money.Â
- It helps you stay on the course of financial freedom:Â By maintaining your essential savings account you form a good financial habit. It can guide and help you understand your future needs.
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đȘŁBucket 2ïžâŁ: Short-Term Goals and Wants (30%)
Life is supposed to be lived and money is a crucial element in fulfilling life’s dreams. This is the bucket where you plan your dreams and desires. Save the money before spending on these dreams. Donât go broke by purchasing on credit cards.
âThe happiness of spending money that you OWN and not OWE is just on another level.â
Put aside money by automating your short-term goals and live your life to the fullest**.** Some of the short-term goals could be:
- Down payment on a house: Dreaming of that first house, set aside some money by automating for the down payment. In a few months or a year or two, you can make it happen.
- New dream car: Wanna purchase a brand new car then why not save for it? In a couple of years you for sure can afford a brand-new car with no payments and a big smile on your face.
- Dream vacation: Want to take your kids to Disney Park or you wanna visit another country? Whatever your dream vacation is, you can make it happen by putting aside a few hundred dollars from your every paycheck
- Emergency fund: This is not a want but a must. It is a must if you donât have any money in savings for emergencies. If you have at least 3 months of savings for emergencies then you could start building for 6 months and then for 12 months.
Advantages of dedicated savings for your Short-Term Goals and Wants:
- Achieve your desires faster: By intentionally working towards your dreams you can achieve them faster.
- Avoids financial strain: Having dedicated funds you wonât have always juggle your expenses.
- Feel good: Knowing that you are utilizing your money instead of just spending can give a sense of purpose to money.
đȘŁBucket 3ïžâŁ: Investing for Retirement (20%)
You wonât be able to build wealth by putting your money in a bank account. Inflation is going to eat the value of the current dollar. We must beat inflation and prepare for our future needs by investing our money. The compounding of money will help us have more money if we start sooner. Donât rely on social security or your kids, you must secure your retirement by automating your investments.
You wonât be able to build wealth by putting your money in a bank account. Inflation is going to eat the value of the current dollar.
You must explore options for investing starting with your employer:
Employer-sponsored plans:
- 401(k) and 403(b): These plans allow you to contribute pre-tax dollars, reducing your taxable income. Many employers offer a matching contribution, essentially free money, which you should aim to maximize.
Individual Retirement Accounts (IRAs):
- Traditional IRA:Â Contributions are typically tax-deductible, and earnings grow tax-deferred until withdrawal in retirement.
- Roth IRA:Â Contributions are made with after-tax dollars, but qualified withdrawals in retirement are tax-free.
HSAs (Health Savings Accounts):
- Triple tax advantage: Contribute pre-tax, grow tax-free, and withdraw tax-free for qualified medical expenses anytime, including in retirement.
- Not just for medical: After age 65, any withdrawals are taxed like regular income but still offer flexibility compared to traditional retirement accounts.
đConclusion: The Power of Automation: Set It and Forget It
The key to making this 3-bucket strategy truly effective lies in automation. Setting up automatic transfers from your checking account to each bucket immediately after you get paid is crucial. This eliminates the need for manual transfers and the risk of forgetting or being tempted to spend the allocated funds elsewhere.
"Start automating your paycheck, give your dollar a home, set it, and forget it."
Start automating your paycheck, give your dollar a home, set it, and forget it. In the end, you just wanna enjoy life, donât you? Share your tips on automating the finances.
