How To Never Miss Another Payment AND Always Have Extra Left Over
Creating An Automatic Savings Machine
There is one precursor to this strategy that you have to be on board with, it’s pretty standard but this idea is all fundamentally built on one principle, that is make sure you have enough money to cover your expenses in the first place, meaning even this cool way to train your brain and have your money moved automatically won’t fix the problem of not having enough money in the first place to cover your costs. Just had to make that clear to start.
Over the past couple years I’ve seen immense power in money management by using a multi account tiered process. There are many new “millennial banks” that are popping up like Simple bank that combine your checking and savings all in one, it’s free and it’s super simple to use. It’s pretty cool too, and I’m a fan of those accounts, but more so from the perspective that it’s an account I can use in my setup.
I like to setup an account for every fixed expense possible. If I could have it perfect, I’d have 1 checking or savings account for every single one, meaning one for electric, one for rent, one for insurance (separate for each type) and so on and so forth.
The second piece to this puzzle is the idea of weekly deposits. Once you have all of these accounts setup, you simple set a recurring weekly payment to cover your expense. So if my car insurance and renters insurance bill is $135 a month I would just take $135/4 which equals $33.75. Then, rather than only doing that bare minimum amount I try to round it up just a bit, to something like $35 per week.
The beauty is that extra $1.25 does almost nothing to you when it draws, but it does start to add up really nicely. The other great thing is that most payments are monthly, but there are actually 52 weeks in a year, which isn’t perfectly divisible by 12, meaning, there are more than 4 weeks in a month.
To be safe I always do the calculation by 4 to make sure there is always plenty of money, but that extra week every now and then adds up over the months. There are technically 4.33333333 weeks in a month so if I add $35 per week to an account I’ll have $151.67 each month that’s added to that account, which if you remember, my bill is $135 so I’m adding an extra $16.67 per month. Now that doesn’t seem like much, it’d probably barely cover your Taco Bill bell at 2am but it is extra and over the course of a year it adds up to an extra $200, sweet right?
The magic in this process is that it is separate, automated and weekly. You will start to forget about it that it is even happening and soon find that you have a lot of extra money in multiple accounts.
The best part about this process is when additional unforeseen expenses come up in an area you weren’t expecting, you now have extra funds for that thing. Take tires for example. That comes out of my car account, which gets a bit more than my monthly car payment requirement. Tires are only replaced every few years, so that account builds up extra all the time, then when that big lump sum of money is due, the burden is lessened dramatically.
It works every time, no matter how hard it is to get your brain to believe that it will be better.
You might ask, “What if I like to use my Credit Card so I can get miles or points?”
I’d say, “sweet, me too. I do that all the time. You just submit more payments to your card from multiple accounts, and do it after you make the purchase so you don’t get caught off guard or get behind.”
If you had to pay a co-pay on your prescription, then you’d just use your credit card like normal, and make a payment to that card from your account that covers your health insurance and expenses.
This process can be expanded to be as complex as you want but the key is to have the right tools in place to make it work. The most important piece of this is figuring out where to keep the money that is easily accessible.
So far in all my research I would recommend you use Ally Bank. They are free to set up, there are no monthly fees with your accounts and as far as I can see you can have as many accounts as you’d like with nicknames. I originally tried doing this with Chase Bank, but $6 a month per account * 10 or more accounts could be expensive, and definitely defeats the purpose.
Plus with Ally you could use one of their “high yield” savings accounts, which gets you 1.6% annual return, which isn’t much but it’s better than what you are getting right now. The only caveat is you can only do 6 transfers a month for free, so you’d need to only pick that account type for certain bills that are very consistent and won’t require additional transfers.
The checking accounts get a whopping 0.10% annual return, which sweet, you’re not going negative.
The other backup savings plan and tools I use that I can’t recommend highly enough are the following:
Digit is an AI driven savings bot, it’s about $2 a month but it looks at your spending habits and automatically transfers money from your checking account to a savings account. You can set up different savings goals and tell it how aggressively you’d like to save, but the key is it’s lots of small micro transfers and they are automatic without you knowing. Over a few months you easily build up a nice extra stash. I’ve used it many times for that new thing I find and really want, or that emergency thing I needed, it’s awesome.
Acorns is pretty popular and awesome, it’s an automatic investing tool. You hook it up to your account and it invests the difference of every transaction you make, so if your drink was $4.37 it would round that to $5 and invest that $0.63 in your account. Overtime that number get’s increasingly large, it’s pretty awesome. You can also set a weekly investment that you push in there. So I do roundups and an additional $5 a week. It’s not much but it’s automatic savings that gets a better return than just a standard account.
Hope that helps you in your financial quest to have things setup as stable as possible, it’s been immensely helpful to me and is an ever evolving and improving process.