How to automate your personal finances in Australia

Prevailing wisdom claims the best way to get what you want in life-whether it be to get into better shape, build a successful business, or save more money-is to be specific and set actionable goals.

This is how I used to approach my personal finances too. Each pay, I had a goal to be reached. I succeeded some months and failed in others.

Eventually, I realised the result had little to do with the goal and everything to do with systems. Here’s why:

• Goal setting has survivorship bias: We concentrate on people who end up meeting their goals and assume the goal was what led to their success, overlooking everyone who had the same objective who didn’t make it.
• Achieving a goal is a momentary change: Imagine you want to save $100 this week, you summon up the willpower and do it. What about next week?
• You’re losing until you win: With goals, you’ve either achieved your goal and are successful or you failed and are disappointed. Fall in love with the process not the product.
• Goals are like yo-yos: Many people save for months, then stop once they meet their goal. Systems are the long-term approach.

I’m not saying goals are useless. They’re great for planning progress and systems are good for making progress.

With that in mind, this is my guide to building an automated system for your personal finances.

Note: I don’t have a mortgage, kids, shared bank account or debt. This is what works for me. YMMV.

That said, the principles outlined below can help you build your own automated system, regardless of where you live or your living situation.

The personal finance system

The Sankey diagram below is exactly what happens automatically each time I get paid. Pretty simple right.

Personal finance is easy once you build a system that automatically moves money around for you when you get paid.

It’s about removing optionality.

My personal finance system uses technology to remove decision making. Passively managing my bills, savings and investments. And since it’s a system, it’s flexible enough so you can tweak it to your specific situation (just change the percentages!)

The axioms of the system are:

• Pay off high-interest debt first
• Build an emergency fund
• Use mental accounting to your advantage
• Invest in tax-advantaged retirement accounts (superannuation)
• Invest outside of superannuation

With the system outlined, let’s dive into the nuts and bolts of how to get it set up for yourself.

Step 1: Set up required accounts

You need three accounts to use my system, namely:

Personally, I use Up for my bank, Spaceship Voyager for my investments and Sunsuper for my superannuation.

Why I use Up

Up is a mobile-first bank designed to help you organise your money and simplify your life.

And for me, it does just that.

Use my sign up code ABI or click here to sign up to Up and we’ll both get $5.

The primary reasons I use Up are:

• Automated salary splitting: Pay comes in and it’s split into my five buckets (transaction, buffer, splurge, short term, long term).
• 2.25% interest rate on multiple savers: Up to $30,000 unlike other banks who generally apply their bonus rate to one savings account. This means the buffer, splurge, short term and long term buckets outlined below can all earn interest. Note you must make 5 card purchases each month to qualify.
• No monthly fees: Up account is free for most standard use, excluding withdrawals from non-major bank ATMs.
• Upcoming payments: Up detects recurring payments and pops them into their own section in-app with a summary of how much is expected to come out over the next month.
• Identified payments: Up shows you the names of the businesses you spend at, their location and even the logo for the majority of Australia. Additionally, you can tap on the transaction and see a summary of how much you’ve spent at a location or merchant over time.
• Great support and attention to detail: I messaged their support about a minor UI bug on a single webpage on Friday at 4:59pm, it was fixed on Saturday at 8:01am.
• Fast iteration and transparent product roadmap: Their product and engineering teams ship legitimate features fast and they have a fantastic public product roadmap.
• No fees on overseas purchases (online or in person): Up uses the standard Mastercard exchange rate of international purchases.

There are a bunch of other nice features but those are the main things to call out. You can read more about Up here and get the latest information about their fees and interest rate here.

Use my sign up code ABI or click here to sign up to Up and we’ll both get $5.

That said, if you need a shared account or aren’t comfortable banking solely on your phone, you’ll need to wait for them to release shared accounts/a web app or use a different bank.

Either way, the principle will work with or without Up, it might just be a little more work.

You can read more about Up here.

Why I use Spaceship Voyager

Spaceship Voyager is an investment app designed to make it easy to start investing.

Use my referral code S82JU98M4P during sign up and we’ll both get $5 invested in our accounts when you invest at least $5 within 90 days of signing up.

The primary reasons I use Spaceship Voyager are:

• No minimum investment and no brokerage fees: This allows me to dollar-cost average into the market on a weekly basis without brokerage fees eating away at my returns.
• The first $5,000 is invested fee-free: A great way to build the habit of investing without worrying about how much it’s costing you (minus potential negative returns).
• It’s low-cost: Spaceship Voyager has two portfolios, Universe and Index which both have low fees, at 0.10% p.a. or 0.05% p.a. of your balance above $5,000 respectively.
• It’s 100% equities: I want to maximise my equity exposure while I’m young, am investing for the long-term, and personally don’t mind market fluctuations.

Personally, I invest in Universe, which is made up of 50 Australian and 50 international equities. You can read more about the Spaceship Universe Portfolio here.

If you’re more of an index investor, Spaceship Index Portfolio may be of interested to you.

Use my referral code S82JU98M4P during sign up and we’ll both get $5 invested in our accounts when you invest at least $5 within 90 days of signing up.

Like any investment, you should do your research and see if it meets your risk tolerance and investment needs. You can read Universe’s PDS here.

Disclaimer: I used to work at Spaceship and have good friends that still do. This may be biasing my choice of investment product. There are hundreds of good alternatives, such as a Vanguard ETF, Raiz, Stockspot, Six Park, Clover or QuietGrowth just to name a few.

Why I use Sunsuper

Sunsuper is an industry fund with >$70 billion in FUM.

I use Sunsuper for my superannuation account because it allows me to invest in a fund that seeks to match the performance of MSCI World ex-Australia Investable Market Index (IMI).

I personally allocate 100% of my superannuation to the Sunsuper International Shares Index (Unhedged) investment option with no insurance.

At the time of writing, this set up costs me $78 + 0.20% p.a.

This is one of the cheapest investment options in Australia and it suits my preference to invest outside of the Australian equity market.

As with any investment option, you should do your own research and determine what investment option meets your risk tolerance and investment goals. You should read SunSuper’s PDS which will always contain the latest information about fees and costs.

Note: I’m young and have decades until I retire, you may opt for a different superannuation fund and/or investment option that better suits your needs. This is something that is worth doing research on, superannuation is real money and often, a large percentage of your overall net worth.

Step 2: Create your buckets

I don’t budget. I use mental accounting to my advantage and create buckets (different savings accounts), hat tip Barefoot Investor.

For the uninitiated, mental accounting refers to a concept found by behavioural economist Richard Thaler. The idea is people tend to place a different value on money, based on largely subjective criteria.

This means that while money is technically fungible (meaning it is the same regardless of its origin or intended use), we tend to treat money differently based on how we allocate it among different accounts.

Whether that be a savings account, discretionary spending account or an investment account.

Think about when you were younger and had a piggy bank you would never touch but when you were given money for something else you’d spend it right away, that’s mental accounting.

Yes, I’m aware that mental accounting is generally used to talk about irrational spending but bear with me :)

To take advantage of this phenomena, we can classify our pay into different buckets and trick ourselves into saving and investing.

Note: for most of us, Superannuation is automatically done for us so I’ll leave Super out of the discussion.

The five buckets I use are:

1. Transaction: 10% of my income goes here on pay day to cover any expenses or bills that might come out of my account on the following day. I try to keep a few hundred dollars in here max, so I can maximise the amount of interest my savers get.
2. Buffer: 50% of income goes here and I transfer from my buffer account to my transaction account on an as needed basis. This covers rent, food, my Spaceship Voyager investment and any other daily expenses.
3. Splurge: 10% is for guilt-free spending, think AirPod Pros, Apple Watch or a Lululemon addiction.
4. Short term: 10% is for short term rewards like holidays, flights or any larger purchases.
5. Long term: 20% goes here to build my six month emergency fund. I plan to reallocate this cash flow to my superannuation as a voluntary contribution and/or my Spaceship Voyager account once I get to six months of expenses.

Note: If I had any high-interest debt, e.g. a credit card, I would funnel as much money as I could bear to paying that off first. It’s next to impossible to out invest a 15% annual percentage rate (APR). Remember, we want to use mental accounting for good not for bad.

If you haven’t downloaded the Up app, it’s time to install the Up app and sign up.

Use my sign up code ABI or click here to sign up to Up and we’ll both get $5.

Now that you’ve sign up, it’s time to create your buckets. You won’t need to create your transaction bucket as that’s done for you when you sign up to Up.

To create your first bucket, slide across to the Savers tab and:

1. Tap the + in the bottom right hand corner
2. Name your saver, e.g. Buffer
3. Choose an emoji for your saver, e.g. 💸
4. Choose an amount you would like to save or skip
5. Set up auto transfers or skip
6. Tap Create Saver

If pictures are more your thing…

Repeat these steps until you’ve set up the four buckets.

Step 3: Use Up’s Pay Day feature to automatically split fill your buckets

Now you’ve set up your buckets, it’s time to get your salary paid into your Up account.

You’ll need to talk to your HR department or boss to get this bit done.

This step can take a bit of time, depending on when you get paid next, feel free to skip this step and come back once you’ve been paid into Up.

Once Up has identified your salary, you can take advantage of their Pay Day feature which allows you to automatically transfers a percentage of your pay into different Up accounts.

To set up Pay Day, head to the payments tab and click on your company’s name. You should see a message that says “Payments from this contact can be automatically split between your Up Spending account and one or more of your Savers.” Tap that.

You’ll then see a screen titled “Split payments” with a description “Automatically split any incoming payments between your main Up account and one or more of your savers. Estimates are based on the last payment you received.”

Tap the pill to enable payment splitting and use the sliders to set up your buckets:

• 10% to Up account
• 50% to Buffer
• 10% to Splurge
• 10% to Short Term
• 20% to Long Term

Congratulations, you’ve successfully automated the savings and superannuation part of your personal finance system.

Now it’s time to automate your investments.

Step 4: Automate your investment with Spaceship Voyager

If you haven’t done so already, install the Spaceship Voyager app and sign up. Make sure to set your Up transaction account to the funding account.

During the onboarding, you’ll be prompted to set up a recurring investment.

Personally, I invest roughly 9.5% of my post-tax pay as a recurring investment each week. Choose an amount that works for you.

If you didn’t set up a recurring investment during the onboarding or want to change the amount/frequency, tap on the “Account” tab and scroll down until you see “Investment plan”.

If you haven’t got a plan, you’ll be greeted with a screen titled “Investment plan” and a description that says “You don’t have an investment plan. If you’d like to set one up, press ‘Set up plan.’”.

Tap set up plan. The next screen will have a pill with weekly, fortnightly or monthly options. Tap on whichever frequency works for you, then change the amount and first investment date as you see fit and tap “Save investment plan”.

Personally, I have my investments come out on Fridays because I get paid on Thursdays, twice a month.

That’s it. I recommend starting off with an amount you can easily afford. It’s more important to build the habit of investing rather than worry that you’re not investing enough.

You’re done

That’s it.

Remember, this is supposed to be a system. If the amounts or methods, I personally use to save or invest are too aggressive for you, change them to fit your needs.

For example, you could start off with two accounts, a transaction account and a long term account, with a 90%/10% split respectively and then invest $1 a week from your transaction account into Spaceship Voyager.

That’s enough to start building a habit of saving and investing.

As you get more comfortable saving or you begin to earn more you can add more parts to the system or you can change the amounts you save or invest, e.g. once I hit six months of expenses in my long term account, I plan to push that 20% into my Super or Voyager account.

You might decide you want to more money in your splurge account instead, upping the amount from 10% to 30%.

That’s the benefit of a systems-based approach.

It’s all about building a system of small habits that can compound over time. Your personal finances, much like your life, is a sum of your habits.

Don’t underestimate the value of consistently saving and investing for even a small amount over decades.

Additional resources

For more on the topic of wealth building I recommend:

• Atomic Habits, by James Clear
• How to Fail at Everything and Still Win Big, by Scott Adams
• Nudge, by Richard Thaler
• Super Thinking, by Gabriel Weinberg and Lauren McCann
• Win Bigly, by Scott Adams
• Misbehaving, by Richard Thaler
• Influence, by Robert Cialdini Ph.D.
• The Art of Learning, by Josh Waitzkin
• Chop Wood Carry Water, by Joshua Medcalf
• Loserthink, by Scott Adams
• The Power of Habit, by Charles Duhigg
• Peak Performance, by Brad Stulberg and Steve Magness
• High Performance Habits, by Brendon Burchard
• The Elephant in the Brain, by Robin Hanson and Kevin Simler

For more on the topic of habit building, behaviour change and system design, I recommend reading:

As always, you can find my complete reading list here.

Thanks

Thanks to Jordan Hughes, Guy Proops, Anna Cheng and Jack Walsh for providing feedback and reviewing this.

Disclaimer

The information contained on this page is general in nature and does not account for your specific circumstances. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this page are of a general nature only and are based on my interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

Although every effort has been made to verify the accuracy of the information contained in this page, I disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained on this page or any loss or damage suffered by any person directly or indirectly through relying on this information.

Originally published at https://abi.substack.com.