How to Put Your Finances on Autopilot

By: Bill Davis

In your quest for taking control of your own personal finances, it is important to remember that doing so is a means to an end. Ideally, you want to get your financial house in order so that you can lay the foundation for creating substantial wealth.

Laying that foundation can be accomplished in a number of ways. The most popular way, and least effective way, is to let your bills come in, pay them if you can, and save later.

There is a far more effective way to lay this foundation: Automate your finances.

Today is your lucky day. I will show you how to completely automate your finances: Pay your bills, set up your savings and investments, and never write a check or lick a stamp again.

The key to all this is using the online services that are available to you now.

First, open a FREE online checking account. There is a plethora of them out there, so finding one should be super-easy. I use WaMu, but you can use Schwab, your local bank, or some other source.

Set up a FREE online savings account, too. In fact, open 3 or 4 (I'll tell you why shortly). Make sure it's a high-yield savings account. Link it to the checking account you just opened.

Here's an optional tip for those of you rewards credit card fiends: For every regular bill you currently pay, set it up so that your rewards card is debited for the monthly amount. Do not confuse this with a debit credit card. No, use a true rewards credit card, either a points, airline miles, or cash back credit card. The benefit here is that you rack up a ton of rewards for things you would normally pay by check or debit card. This is as close to a free lunch as you're going to get.

Now, set up your investment vehicles. If you have the option of investing in an employer-provided plan, like a 401k, set up whatever minimum there is to get the employer match. Then, attempt to invest at least another 10 percent in an IRA (Roth or traditional, and the choice is less important than the act of investing in either one). Finally, set up a taxable brokerage account.

Finally, set up direct deposit with your employer so that your entire paycheck is deposited in your online checking account.

The hub of this system is online checking account. For any bills that you could not set up to be paid by credit card, set up bill pays for them with your online checking account. If you did your homework, this feature will be free.

So you've set up all your bills to be paid by credit card or auto bill pays. The only manual bills you'll have to pay are your credit card bill and any recurring, variable cost bills like cell phone (hint: buy a pay-as-you--go plan and you'll eliminate this, too), water, and power (where I live, PG&E offers a "leveled" payment plan that sets your monthly bill at a constant rate for 4-6 months at a time).

Set up auto transfers from your online checking account to your online savings accounts (set up multiple savings accounts for things like your emergency fund, vacation fund, gift fund, and escrows like property taxes and insurance that come due every 6 to 12 months), your retirement accounts (IRAs), and your brokerage account (Zecco and TradeKing work great, as does Sharebuilder).

Take it one step further: Set up your investment accounts (IRA, 401k, and brokerage accounts) to take that auto-transferred money and invest it regularly in mutual funds and stocks in fixed dollar terms on at least a monthly basis (taking full advantage of dollar cost averaging).

The beauty of this system is that it's infinitely flexible and you can adapt it to your particular needs and goals.

Remember, this system helps you lay your personal financial foundation. Using the time you save, and your newfound financial organization, layer other strategies on top of this foundation to totally stoke your financial future!

In future articles, I'll show you what I mean.

Finance
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