Do you have the right bank account structure in place? If your answer is yes, you have the perfect foundation to eliminate Money Stress forever. (If you answer no, check out this article to learn exactly how to put the right structure in place for you.)
Building the right account structure is a great start, but there’s still one more step. You’re probably looking at all your new accounts thinking, “How do I manage all of these accounts so I can reduce my money stress?”
The Answer is Automation
If you’re still thinking about money every day or week, you haven’t eliminated your money stress. You need to start automating your finances.
When we use the term “automation,” we mean a methodology allowing your money to move from one account to another with little oversight. When you act on this principle, you free yourself from the burden of constantly looking at account balance statements or worrying about having enough money for rent each month.
The Perfect Account Structure
With your Perfect Account Structure in place, you’re ready to take the next step. You have a central Income account consolidating all your income sources into one place. You’ve connected your accounts, and you know where your money needs to transfer to. You have an Everyday account for daily purchases, a Pay Yourself First fund that’s building your Financial Freedom, a Surprise! account for (you guessed it!) surprise expenses, a Goals account and any other accounts your financial advisor suggests.
So how do you determine how much money should go to each of these accounts? Let’s take a look at the sample worksheet document in Module 3 of Financially Fit Bootcamp created by a couple we’ll call John and Mary.
How John and Mary Create Automation
As expected, John and Mary have cash from multiple sources funneling into their Income account. Housing, utilities, phone plan—any bill that is a regular and fixed amount—is paid directly from this account.
But that’s where the use of the Income account ends.
Getting Clear on Monthly Expenses
That’s because the next step for John and Mary is getting crystal clear on the rest of their monthly expenses. Looking at what they spend on groceries, gas, clothing and even meals out, they get a sense of their monthly variable (or flex) expenditures, how often they have surprise expenses and a real accounting of their existing debts. With all their expenses on the table, they have a good idea of how much money they spend on a monthly and weekly basis.
Automating for Ease
Instead of relying just on the Income account for their outgoing cash flow, John and Mary set up automatic transfers of cash to their Perfect Account Structure. Money is automatically sent to these accounts for the amounts they calculated they want to set aside or that they predicted they’ll need for weekly expenses.
One of the most important automations is their Everyday account. Each week, a set amount is transferred into this account. This is the money they spend on their weekly life and entertainment. By getting paid on a weekly rather than monthly basis, they’re less inclined to overspend early in the month. The feeling of running short on cash is a major trigger for credit card use and increases debt. Weekly transfers means they’re never more than six days away from more cash!
The result is that John and Mary have automated their savings and their monthly spending.
Don’t Give Up!
Automation feels magical, but don’t give up if your setup doesn’t work perfectly at first. Underestimating a recurring expenditure is a common mistake. If you find yourself falling short, you just need to adjust the flow. For this reason, setting aside a small cash buffer—say $100 or $200—in each of your accounts is a good idea.
Getting the right balance may take a couple of tries, but over time, your automation will feel as natural as breathing. If you have questions about automating your finances that are specific to your situation, you’re not alone! Join our Financial Foundations Community and meet others who have had amazing results taking action on Automation.
So, now that you have a better understanding of how automating your finances can help you on your way to Financial Freedom, what will your next step be?
Dr. Tony is the co-founder of MindShift.money and the best-selling author of three books on personal and business finances. Having achieved Financial Freedom at 27, Dr. Tony believes that through Financially Fit Bootcamp and Cash Flow Cure everyone can get there. He has made it his life’s mission to help others live a life where their money works for them—not the other way around.