Anyone who knows me, knows that I'm....lets say efficient! Efficiency is the best Fish in Sea (just made that up). So why aren't we all more efficient by using the power of Automation??? Who knows, but it's certainly great for mundane tasks like budgeting! Almost everyone loves automation, whether you realize it or not. One great way to tell is the amount of people who use Direct Deposit. Unlike the approximate 30% of people who actually decide to create a budget, there are positive signs for the amount of people who use Direct Deposit.
Automate It 5-3-2 Style!
According to the NACHA 80% of Americans use Direct Deposit. To me, this means 80% of Americans like Automation. I mean who wants to go to wait patiently for the mail man, walk or drive to your mailbox, grab your check, go to the bank, then deposit it at an ATM or wait in-line for a teller to cash it. That's so 20th Century, and such a waste of your valuable time! By now you should be asking, "well what are we automating, and how does this relate to budgeting?
If the company you work for allows for it, you should automate deposits of your income into 3 separate accounts, and also automate the payment of all of your expenses! Here's the break down. With the breakdown of the 5-3-2 Plan, I recommend a separate account for each. Have your direct deposits for your Fixed Costs (50% of you income) go into one account, and pay them all out of this account. Then set 30% of your income to go into a separate account for your fixed costs. This can either be a 2nd account with the same bank, or with a different bank. Personally, for the 3rd 20% account (Savings!) I prefer to have a separate bank account. Preferably a bank where you do not have easy access to the funds. I use an online bank to take care of my savings. No local branches or ATMs are available, so it takes 2-3 days for me to get money out of this account. Inconvenient you say?? Absolutely! It makes me think twice and plan ahead before dipping into my savings!
Want to take it to the next level? Pay all of your expenses with your Credit Card! I say this is the next level, because I don't recommend it for everyone. But, if you are really disciplined, using a credit card can actually benefit you in more ways than one! If you have a rewards or cash back card, which you should, you can earn points towards flights or get cash back for a percentage of your purchases. I prefer cash back cards, and there are some great ones out there! Some will offer a flat rate of 1-2% cash back no matter what the purchases are, while others will give bonus percentages for certain categories like: food, gas, or shopping at certain department stores. I've seen some special categories at 3%, 4%, and some as high as 6%. These higher percentage categories typically have yearly limits, but it's certainly better than NOT getting anything back at all for doing the same thing you would do with your debit card (slide it).
You can then have the cash back sent to you via check or, you guessed it.....direct deposit to your bank account! Some companies will even allow you to pay down your credit card automatically with the cash back you receive. It's like getting a 1-2% discount, or higher in special categories, just for choosing to use your credit card instead of your debit card or cash. Now who doesn't like discounts!
To add to the automation, you can have your credit card paid automatically each month. If you have properly budgeted, and stayed within your set spending limits, then having your credit card bill automatically paid from your bank account will not cause any concerns! Also, paying off your bill in full each month will prevent you from paying interest fees, thus allowing your cash back savings to be actual savings!
Need help keeping all of this automation in order? I'm sure you do, and there are many options out there. Apps like Mint and Personal Capital, Notes (app or pen/paper), Envelope System (old school method) are great ways to stay on top of your budget. Review your system when making a variable cost purchase.
Have any apps or other methods of tracking your budget that you recommend? Leave a recommendation in the comments below.
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Akeem The Dream
I enjoy discussing and learning about technology, stocks, sports, and beating my wife at Dominoes! As I learn, I love to share with family and friends so that we can share our knowledge. Thanks for being apart of the journey!