Chapter 6- Automate
Everything I’ve taught you so far has given you the tools and know-how to save for your future. Following the steps and guidelines supplied in the previous pages, you will become a savings-sensei and have an incredible future ahead of you, filled with all of the things you love.
You will also need to bear in mind the psychology of saving. As I’ve already touched upon, the habit of saving is almost more important than how much you save., Regular, steady contributions will pay off, so you need to think of saving how you would brushing your teeth: it’s something you do almost without thinking every day. You brush your teeth to make sure that they stay strong and heathy and keep you chewing for the rest of your life. Your savings also need to support you through the duration of your time on this planet, so make sure that they are also in the best condition possible.
But, does it feel a little like too much hard work? The reason so many people shy away from their finances is because they simply cannot be bothered to learn and implement the secrets of my trade. And please don’t think that I’m berating you, if you are one of these individuals! Most people do not have the time or knowledge to make a success of their savings, so you shouldn’t feel alone.
In fact, I’ve got a special gift specifically for you; the magic glue that binds the likes of Pound Cost Averaging, Compound Growth and the SIMPLE Money Management System all together.
As with the rest of their financial planning, the majority of people rarely commit to investing as much as they know they should; others may start to save, stop and fail to revisit their planning, and some people completely ignore the fact that they will need money for their future. The intention of many people is to start at the next pay rise, and yet they then rarely implement this. But my secret, which I’m about to share, will completely cut out the need to actively ‘think’ about your planning; instead, you can reap the rewards of saving without lifting a finger.
In the previous chapter I set you the ‘jar challenge’, where I asked you to create 7 pots to put your money into. That’s all well and good, but wouldn’t it be more effective if this process could be done automatically for you? Personally, I think electronic automation is the best way to ensure your Money Management System is a success: it removes the temptation to ‘mess around’ with the amounts, it’s quick, easy and gives you a clear insight into just what is happening with your money. It also removes human errors, such as forgetting to pay bills or making impulsive, often regrettable, purchases.
We’ve all heard the phrase that ‘money burns a hole in your pocket’ and it’s true! Regardless of your good intentions, if you’ve got £50 in your wallet, you will spend it, and probably not on what you should! By automating your money this problem is removed and you are setting yourself up for financial success. Not only that, but modern technologies allow you to monitor your balances, analyse your trends and have been proven to help you reach financial security much quicker.
For many people, especially the younger generation, starting a savings plan from scratch can feel overwhelming. Thankfully, in recent years, a plethora of digital money-tracking services and applications have emerged and with these new automated tools, you can start saving without thinking about it.
Even if ‘apps’ seem like a completely alien concept to you, many online banking providers allow you to replicate the ‘jar’ principle and create your very own accounts to divert your income before you spend it. Even at a base level, simply setting up, and regularly checking, Standing Orders to your chosen charities, investment firms and utility providers, will ensure that your money goes exactly where you intend it to, when you want it to.
We as consumers now have a wealth of options to choose from to take small steps toward financial freedom. It may seem daunting, but embracing technologies can be the difference between a bright tomorrow or a broke today.
If you are an employee, for example, saving for your retirement couldn’t be easier. Now that auto-enrolment has become mandatory for nearly all UK business, your employer set up a suitable pension scheme for you and your colleagues. Whilst this is not the place to discuss the best types of pensions for you, this habit of regular saving is, without doubt, a beneficial addition to your savings and your future. Best of all, it will be automated from your salary, so you don’t have to actively move money into your savings fund.
I recently read an interview on the CNBC website that illustrates the importance of automation so well that I wanted to share it with you.
When Grant of Millennial Money looked at his bank balance after graduating from college, he knew he had to buckle down.
With $2.26 to his name, he moved back in with his parents, landed a digital marketing job and started building websites on the side to complement his $50,000 salary. Within a year, Grant was making more money from his side gig than his full-time job.
"I was hooked and turned my side hustle into a digital agency that I still run today," the now 31-year-old, who goes by his first name exclusively, tells CNBC. "I've generated millions and millions of dollars in revenue growth across my clients."
While much of his financial success is due to the fact that he focused on earning and developing multiple streams of income, a key step to building wealth is saving, Grant says.
During his five-year journey to millionaire status, Grant saved 50% of his income. He didn't just save a ton of money — he put it to work. After all, "in order to build wealth you need to be making as much money as possible on your money," Grant writes on his blog.
Today, despite his financial success, he still focuses on living simply and sets aside 40% to 50% of what he makes.
The key to saving half your income, Grant says, is to make things automatic: "Automation is essential. When I first started saving and investing, I was a little more old school — I was trying to invest as much as possible into the online savings accounts I had set up and it was a pretty manual process. Now, one of the biggest recommendations I make is to automate as much of your savings as possible."
Today, there are a handful of apps and tools "that make it so easy to save without even thinking about it," the self-made millionaire says. He recommends talking to your HR department and having a portion of your income automatically sent to a savings or investment account. This is in addition to contributing to your 401(k), Grant notes.
You can also look into micro-investing apps that invest your "spare change." Acorns, for example, will round up your purchases to the nearest dollar and automatically put any spare change to work.
Grant isn't the only one who advises putting your financial plan on auto-pilot. As self-made millionaire David Bach writes in "The Automatic Millionaire," automating your finances is "the one step that virtually guarantees that you won't fail financially. … You'll never be tempted to skimp on savings because you won't even see the money going directly from your pay check to your savings accounts."
The sooner you set up the automated system, the less worry you will have about managing your finances. I have found from personal experience and client feedback that people using this kind of system can control their spending, pay off debts faster and save more for their financial goals.(Courtesy of Millennial Money and CNBC.com)
One of the reasons I love this story so much is that it alludes to one of my all-time favourite books ‘The Automatic Millionaire’. It’s a great read for anyone interested in creating their own money management system, but it also hammers home the concept of automation. In another of his books, Bach goes on to say, “What determines your wealth is not how much you make but how much you keep of what you make.”(Smart Women Finish Rich: 9 Steps to Achieving Financial Security and Funding Your Dreams) With automation, you will be able to ‘keep hold’ of more of your money and not squander it unnecessarily.
Whether it’s your day-to-day household expenses, or the monthly contribution you make into your pension, always try to automate as much of your money as possible. Set up Standing Orders now, so that you don’t have time to forget, change your mind or let life take over. It really will make your life simpler and fast-track you on the road to financial freedom.