How I automate my finances — My path to financial independence
I love minimalism! I love simplicity! In fact, I am a firm believer in the importance of automating tasks that require repetitive manual handling.
In an effort to pursuit simplicity in life, I have automated my finances on a monthly basis. I emphasize on reducing mental or physical struggle when it comes to money.
Quick disclaimer: This article includes personal opinion only. None of the following is financial advice.
How I categorize my personal finances in 3 categories:
In general, I split my finances in 3 categories:
- Emergency fund.
- Money ready to be spent.
- Savings & Investments.
All of the above sectors are important, in my opinion and I will thoroughly explain how I use each one.
Let’s dive into the categories:
A. Emergency fund:
The emergency fund is very important. Anyone should have a safety pillar, in case something unexpected happens.
Generally, the size of the emergency fund is a personal matter and depends on the lifestyle, the income and the expenses that anyone has.
Personally, I put away six months’ salaries.
In order to reach this amount of money, I have set an automated transaction that transfers money from my payroll account, straight into my emergency account.
B. Money ready to be spent:
This category is straightforward. I hold two bank accounts, in which I keep money ready to be spent. Briefly, I own:
- One “Daily expenses” account that I use daily.
- One “Short-term expenses” account that I use for expenses that are planned to occur in the short-term future.
The “Daily expenses” account is used for my everyday expenses, such as the supermarket, the bills, various subscriptions, the car’s gas, the rent and everything related to leisure and entertainment.
The “Short-term expenses” is basically an account, in which I save money for future expenses that I know I will make. For instance, I save money for a new laptop, a trip, or a house renovation.
Again, the transaction to my “Short-term expenses” account is auto-triggered every month. The “Daily expenses” account is actually my payroll account.
C. Savings & Investments
This category basically entails money, mostly in form of assets, that will be kept away on the long-run. I plan to save money in this category for at least 15 years and, ideally, for more than 25 years.
It is very important to mention that this category is versatile. As such, I will not withdraw money from my investments, but, I will reallocate money between the asset classes in which I invest, on a yearly basis. More information about my investing plan for 2022, will be available in the next story that I plan to post.
How the automation really works:
a. Every transaction is automated.
b. The percentages mentioned below suit me best for 2022. Of course, the amounts may change yearly, but the main skeleton will be the same.
c. Every month, I get my salary and I basically make 3 transactions:
- 8% of my salary goes to my Emergency Fund. Once I reach the optimal size of 6 salaries in my emergency fund, I will stop putting money away on that account.
- 15% of my salary goes to my “Short-term expenses” account. I plan to use it for renovating my house and buying a laptop in 2022.
- 27% of my salary goes to “Savings & Investing”. More information about the specific asset classes allocation will be posted in the next story.
Therefore, 50% of my salary remains on my “Daily expenses” account.
Conclusion
The amounts that I have mentioned above suit my personal needs in 2022. Therefore, they may change in 2023. For example, I may need to invest less and save more for short-term expenses. The future is unpredictable, but the main automation system will not change.
I love financial independence! My goal is to have everything work by itself. I don’t want to send money manually. Thus, I automate every transaction and I remain safe and sound, enjoying peace of mind.
