Once your bank account is nice and topped off with the latest, albeit less than advertised, paycheck, it\u2019s time to begin the unfortunately monthly process of writing checks.<\/p>\n
To start, a massive chunk gets lopped off to pay the rent or mortgage. The car payment saws out a hunk almost equally as large. Your latest trip to the grocery store brings another dent, right before those smaller miscellaneous bills \u2013 electric, gas, television, maybe a subscription service or two \u2013 finish off the rest.<\/p>\n
You\u2019re left with no choice but to stare in awe at the rubble that\u2019s left of your salary.<\/p>\n
This is a classic<\/em> case of the backwards budget.<\/strong><\/p>\n The average person pays themselves last, and leaves themselves no choice but to save only the scraps left over. The scraps remaining after everyone else has dipped their hands right into the hard worker\u2019s pockets.<\/p>\n There\u2019s a solution though. There\u2019s a way to flip that budget right side up, and to demand your salary pays its way to making you richer, rather than everybody else.<\/p>\n A way that ensures your paycheck effortlessly, easily, and automatically<\/strong><\/em> makes you richer.<\/p>\n Yes, I\u2019m talking about automation<\/strong><\/em>. Automation is far and away the easiest method to combat the forces fighting over your dollars, and this post will discuss the strategy.<\/p>\n Humans are strange creatures. One of our strangest anomalies is how much more we value things once they become ours.<\/p>\n In psychology this is known as the endowment effect<\/a>. One famous experiment showed that people who were gifted tickets to a basketball game would only sell those tickets for a price 14 times <\/em>higher than their previous hypothetical buying price.<\/p>\n On the other hand, money is the one thing that once we have it, we just can\u2019t wait to get rid of it.<\/p>\n Why?<\/p>\n Money is an inherently useless object. The value of money comes from an ability to spend it on stuff<\/em>. When we don\u2019t spend our money<\/a>, it feels like a sacrifice. We are giving up our ability to spend.<\/strong><\/p>\n In that sense, money holds its own endowment effect. An endowment effect far more dangerous than not wanting to sell some basketball tickets.<\/p>\n Enter the cheat code of automatic savings.<\/p>\n By automatically saving off the top of your paycheck, you never give the endowment effect of disposable income a chance to kick in.<\/p>\n Saving money before you ever get a chance to see it or think about it doesn\u2019t feel like a loss, because it never feels like our money.<\/p>\n Of course, it is<\/em> our money. Instead of handing over our dollars to the bottom line of automakers, mortgage lenders, and restaurateurs, we invest these savings in ourselves. In this way, automatic savings are more our money than any amount of instant spending could ever be.<\/p>\n Plus, automating your money bypasses another annoying pitfall of our minds: stress.<\/p>\n No matter how disciplined of an investor you think you are, and no matter how much you promise to put away money every month, it\u2019s unfair to ask us stressed out humans to compete with the stone cold, emotionless machines, who are willing to work for free automatically managing your money.<\/p>\n Believe me, I know. When I first started saving I tried to do everything manually, thinking it wouldn\u2019t make much of a difference. I\u2019m a money blogger, after all – I think and write about money constantly.<\/p>\n And yet, life sometimes just gets in the way, and having access to a big stack of cash can be quite tempting. Before I knew it, I was months off track of my original savings goals.<\/p>\n Check out Personal Capital vs Mint<\/a> to learn about two of our favorite money-management tools.<\/p>\n Here are a few of the easiest ways I’ve found to automate your money and correct those common pitfalls:<\/p>\n Most 401ks<\/a> and similar retirement plans require regular contributions directly from your paycheck. This makes signing up for your company\u2019s retirement plan and increasing your automatic contributions one of the best ways to start taking advantage of automation.<\/p>\n Setting up and adjusting your 401(k) is typically accomplished via your employer\u2019s payroll settings or payroll forms. If you\u2019re unsure how to increase your 401(k) contributions<\/a>, contact your employer\u2019s HR department.<\/p>\n True story:<\/strong> One day, I started a job with a 401(k). The only way to contribute to the 401(k) was through automatic investments each pay period. When I saw how quickly those automatic contributions added up, and how little time, effort, and stress I dealt with as those investments grew, I was blown away<\/em>.<\/p>\n I started automating as much of my financial life as possible.<\/p>\n Rather than spending hours every day pouring over financial statements, you can automate<\/a> your stock choices\u00a0by investing in index funds<\/a><\/strong>. Index funds automatically choose a mix of companies to represent the entire stock market – a strategy which historically outperforms even the highest paid money managers and stock pickers<\/a>.<\/p>\n Once you’ve automated your stock picking with index funds, you can take it a step further by automating your contributions as well. One of the great advantages of Mutual Funds (versus ETFs)<\/a>\u00a0<\/strong>is the ability to choose set dollar amounts to contribute towards your investments at certain frequencies.<\/p>\n With a few clicks of the mouse, you can set yourself up a recurring investment into your index funds.<\/p>\n Let’s say you want to automatically transfer $100 every month from your checking account to your index funds. Here’s a quick example of how easy Vanguard, my favorite investment company, makes this process.<\/p>\n From your account maintenance page, click “Set Up Automatic Investing” or click here<\/a><\/strong>. Then,<\/p>\n Step 1: Choose which funds to make your automatic contributions:<\/p>\n Step 1) Choose which fund to make your automatic contributions.]<\/em><\/p><\/div>\n Step 2) Fill out a few quick boxes to your liking…<\/p>\n Step 3) and confirm!<\/p>\n Boom, automatic wealth building.<\/p>\n Here\u2019s one of my favorite tricks to automatically keep your investments growing. Whenever you find yourself with the joyous occasion of a raise falling in your lap, take a moment to celebrate. Then, promptly increase your automatic investments<\/strong> enough so that your take home pay (to your high-yield savings account<\/a>) stays the same.<\/p>\n This is called pocketing raises, and it\u2019s way cooler than it sounds.<\/p>\n Your life is pretty awesome right now, is it not? So why not keep it awesome, and pocket that raise for yourself?<\/p>\n You\u2019ll thank me in a year or two when looking at your massive bank account<\/p>\n If you really want to get your financial life running on auto pilot, set up those bills for autopay. These days, everything from credit cards<\/a> to electricity bills can be set to auto pay.<\/p>\n Not only does this free you from the annoying task of manually scheduling monthly payments again<\/em>, but it also ensures you\u2019ll never have to fight your way out of late fees<\/strong><\/a>.<\/p>\n By implementing these five steps of automation, you\u2019re giving yourself a\u00a0wealth building assembly line that covers all the bases. Quickly, easily, and silently.<\/p>\n You can even automate your savings! Check out a list of the best money saving apps<\/a>.<\/p>\nWhy Saving Is So Hard<\/h2>\n
Short Circuit Your Brain\u2019s Flaws With Automatic Savings<\/h2>\n
How to Manage Your Money with Automatic Savings<\/h2>\n
1) Automate Your 401(k)<\/h3>\n
2) Automate your Stock Picking<\/h3>\n
3) Automate Your Index Fund Contributions<\/h3>\n
![\"\"](\"http:\/\/www.investmentzen.com\/blog\/wp-content\/uploads\/2017\/06\/vanguard-step-1.gif\")
![\"automating](\"http:\/\/www.investmentzen.com\/blog\/wp-content\/uploads\/2017\/06\/vanguard-step-2.gif\")
<\/p>\n![\"automating](\"http:\/\/www.investmentzen.com\/blog\/wp-content\/uploads\/2017\/06\/vanguard-step-3.gif\")
<\/p>\n4) Pocket Your Raises<\/h3>\n
5) Automatic bill pay<\/h3>\n
Build Yourself an Automatic Wealth Building Machine<\/h2>\n