Finance is super complicated. You have loans, credit cards, IRAs, 401ks, stocks, bonds, crypto-currency, and the list goes on. In this post I will outline the simple way to automate your finances, so you don’t have to check dozens of things every month. This will not be the perfect way to invest, it will be a way to invest that will allow less stress in your life. When you know you will be able to retire with a good chunk of money in the bank and you will not have to constantly think about investing your financial life will be perfect.
This is also the ‘free’ way of investing, so you don’t have to pay somebody else to manage your money (like a financial advisor) and hope they are doing a good job. This ‘perfect’ method can vary greatly. You will need to cater it a little bit to your lifestyle and your goals. If you want to have good finances and retire one day, it will take a little bit of work. One weekend is pretty much all you need to educate yourself enough to manage your finances forever.
None of this is financial advice, it is just a method you can use that will be very simple compared to many methods of investing. I use most of these techniques myself and it has allowed me to be very financially successful at an early age.
This it will take some work up front. It takes a few hours to accomplish but will allow you the ability to only need to check your account maybe once a month just to make sure everything is functioning properly and you are not being charged for things you didn’t buy or over pay for a service.
This work up front will include deciding how much money you need to retire. A very simple way of doing this is to take your annual spending and multiply that by 25x. You will then need to figure out how much you need to save each month to reach that goal. You will need to find out how you want to save, IRA, 401k, stocks, Bitcoin, etc. Once you know how much you need saved, you can use an investment calculator to find out how much to save each month/year. Of course, the more you save the earlier you can retire or the more money you will have in retirement. Last you need to automate investments, cut expenses, and live your life as you please.
First, like I just stated, find out how much money you need to retire. You can do this by googling “retirement calculator” and plug in some information about how much you make, how much you spend, how much you have saved and plan to save each month etc. In retirement you may spend much more or much less than you currently do. For example, you will not have to drive to work or buy work clothes. You may also have your house paid off, so you won’t have a mortgage payment. But you may spend more by traveling more, golfing every day, or re-decorating everything in sight because you are bored. 25x what you think you will need for an entire year of expenses. That is a simple method of calculating retirement needs. You can google ‘the 4% rule’ for more information on that method. This number is just an estimate, I personally like to estimate a bit more than I really think I’ll need. It’s better to have too much money than run out and panic.
The most important step. Set up automatic transfers to your investments. It is up to you to decide how you wish to invest your money. I personally like to start my investing with a Roth IRA. This is an account that has many tax advantages and is separate from an employer. I also like this account because the most you can put in per year is currently $6000 for most people. Because of this cap it makes it easy to max out each year which feels good.
For example, if you get paid twice a month you can have $250 come out every paycheck to go into your IRA. This will be $6000 per year which is the maximum you can deposit into the account each year. If you wish to invest more there are options to do daily, weekly, monthly, and even some other time frames to invest. Also, once maxed out you can start to invest in other locations if you plan to retire earlier than 65 or so. IRAs are retirement accounts so the main reason to invest here is for retirement, just like a 401k.
Retirement in the US varies between 62 and 67 so if you want to retire before your 60s then you probably should save money outside of retirement accounts, like in stocks (Like apple, or VOO), bonds, crypto-currency or real estate, those are all decent options that have different levels of risk. I choose to invest a little bit in each of them.
Another option if you don’t want to go buy your own stocks is to use Apps, for example I previously used the Acorns App, I would have roundups enabled as well as $5 per day invested. Acorns can do a few things, one is to invest a certain amount of money weekly or daily, even monthly. The other is to round-up your spending. If you spend $1.95 it will round-up this spending to $2 and invest the 5 extra cents. It doesn’t seem like very much money but buying multiple things per day over a few months it builds up to a chunk of money. There are other options to mess with.
What I did was invest $5 per day and I had double roundups enabled so instead of the 5 cents like in the example it would invest 10 cents. This way I would not have to have a huge sum of money taken out of my account at one time and I could slowly get myself into the stock market. Decide where you want your money, and have it automatically go there.
(I’m not saying you should use Acorns, I’m just giving an example of an app that is an option)
Coinbase, Robinhood, IRAs, 401ks, Acorns, and many others have options to do automatic deposits at the times you wish.
PRO TIP (from a non-pro): Investing is something that many advisors recommend being the very first thing you do. Even before paying bills. If you are not saving, then you won’t have money in your accounts to retire. Working all these years to not have anything for retirement is a sad reality of many Americans. SAVE FIRST! 🙂
That is why saving automatically is so powerful, it takes the weekly or monthly decisions out of it. The money disappears out of your checking account, goes into investments and bam you don’t have to do anything.
Next step is to auto-pay your debt. Set up your student loans, mortgages, car loans, etc. to come out of your account on pay day. Just like with investing, try to automate you bills.
An important note is to now get out of debt, by paying extra. Paying interest on your debt could be costing you more than your investments are growing. Pay off debt as soon as possible. Starting with the smallest bill and working up to the largest is a good way to pay off your debt to build momentum.
Moving on you want to minimize the number of financial devices you use. So, you should have one bank with multiple accounts for different things, like checking, savings, investments, travel savings, emergency fund, etc. The bank should have no fees, I use Charles Schwab for that reason but there are other options too. I personally do not use Charles Schwab for my Roth IRA but there is an option to have your bank account, your investment account, and your Roth IRA all through Schwab. Meaning all your stuff is in one location. You can even get a credit card through them to round out everything if that interests you.
When it comes to minimizing you also want to minimize your credit cards. Find one credit card that you like to use and only use that one. I like 2% cash back credit cards, but I have previously used cards that provide air miles when traveling existed back before 2020. Here I am recommending 2% cash back because they are the least work, you just pay you bill on time and get cash back. Other credit card bonuses can sometimes be very annoying to deal with, so I mostly just avoid them.
This will make your bills easier to pay and your rewards less complicated. If you have a business, you should have one card for personal use and one for business. This will make tax write-offs much easier and will reduce stress come tax season. Also, it is just good practice to keep everything separated. Personal and professional spending should probably not overlap.
This entire system is based on the fact that you want to spend as little time as possible managing your finances. Like I said in the beginning, this is not the absolute best way to set up your investing or the best credit cards. It’s just a very simple way to get on track and to be doing much better than most people. This method can easily make you worth multiple millions of dollars depending on when you start investing.
A quick tip is also to find out all the subscriptions you have. I recently discover how much money I has spending on subscriptions when I didn’t have an income for a few months. Even though I was using all of them I decided to cut out a few because it just wasn’t worth it. You may be paying $300, $400, $1000 per month on subscriptions that even though you like, you may not want that permanent bill.
Every bill you cut out puts you quicker to retirement.
The final step is to track all income. This is the main step you will need to track on a regular basis. Tracking income means, your salary, things you sell, making sure you file all your investment taxes. If you know exactly what needs to be gathered each year or already have everything accounted for it will make tax season much less stressful. Make sure your credit card isn’t being charged for things you didn’t buy. Make sure your investment money is going to the proper account.
I’ve mentioned retirement a lot in this post. When I talk about this to people a lot of them say “I don’t want to retire I’d be bored” or something similar to that.
Retirement doesn’t have to mean not working. It can just mean freedom. This freedom can give you the option to move wherever you please. It can give you the option to quit a job when your boss overreaches. It can give you the option to quit you job and work somewhere new, or to start your dream business. You can start working somewhere that doesn’t pay very much money, but you really enjoy the work. You can make a hobby your main gig and just work part time.
Retirement doesn’t have to mean sitting on your butt drinking mojitos. Even though that sounds fun. It can mean whatever you want it to. So, saving the money and giving yourself options is a beautiful thing and I’ve never met someone who was upset they saved a few hundred thousand dollars, even if they didn’t retire.
*None of this is financial advice, it is just one of many methods that you can use to manage your finances. If you want professional advice you should talk to a certified financial professional. This method is not going to get you the absolute most money possible but it can be a solid way to invest and not spend dozens of hours a month managing money and not pay someone to do if for you.