Automating your finances (Ramit Sethi-style)

I’m a big fan of automation, especially for personal finance & investing (think automatic 401k withdrawals.)  A ‘classic’ video from Ramit Sethi is at the bottom of this post, outlining his approach to automating your money.  I recommend watching it (12 minutes) and trying to automate your own money to the extent possible.  It takes a little up-front effort (which you never have to leave your computer chair for), but it pays off big time in making life simpler & helping you effortlessly hit your financial goals.

Using INGDirect for online banking is a big step in the right direction on the automation front.  I use them to automatically mail out my monthly rent checks, and to automatically put pieces of my direct deposited-paycheck into various high-interest savings sub-accounts.  Here’s how I do it.

How I automate my money

I generally have a ‘cycle’ of automatic things that happen per each paycheck.  A certain percent goes to my 401k at Vanguard (and invested according to the index funds I picked.)  The remainder (minus taxes and insurance premiums) is direct-deposited into my ING checking account online.  Of that, a fixed dollar amount goes into a vacation sub-savings account, an account for money that I spend on myself to make more money, and to my no-ATM-fee Charles Schwab checking account that I use for miscellaneous cash needs.

Once a month, my rent check is automatically mailed out to my landlord from my ING checking.  All my other bills (including utilities, cell phone, internet, etc) have been set up to be automatically paid by my credit card.  Thus, I just have one automatic credit card payment out of my ING checking that occurs monthly.  (Some bills can be set up to automatically come out of your bank account if paying by credit card is not an option; but I prefer the latter for the simplicity.)

Anything left over is available for me to either spend (without feeling guilty since I’ve hit all my savings goals), or add to my savings.  If you know me, you can guess that I generally choose the latter, but every once and a while I loosen the purse strings and splurge on myself in the form of good beer or relatively-inexpensive travel.  (I know, I know, I’m a wild man when it comes to my spending sprees.)

Below is a picture from Ramit’s post (linked below) that illustrates how this works:

Having my money automatically going to various savings places BEFORE I get to spend it on discretionary items is part of the idea.  I’m ‘paying myself first’ as the mantra goes.  Of course, you’ll want to have a rough idea of your more ‘mandatory’ spending like rent/mortgage, utilities, gas, groceries, plus a little spending money so that you can estimate how much you can sock away.  If you want to have more money to save, scroll down to the 30 excellent tips in this post.

Ramit’s more detailed explanation

Ramit outlined the approach he discusses in the below video in a blog post here as well.

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One Response to “Automating your finances (Ramit Sethi-style)”

  1. Ramit Sethi will teach you to be rich – 4 links to wealth: negotiate, automate, cut costs & earn more « Words of Ward: Ward's Guide to Personal Finance and Investing Says:

    […] best way to save is to automate the process so that no active effort is required on your part.  This can be anything from setting up direct […]


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