One piece of advice I would give anyone setting out on their own, is to automate any recurring payment they can. At the very least, this allows you freedom from worrying about performing mundane tasks. But, in many cases it prevents you from paying late fees and interest.
The only bill I have that is not automated is my water bill. For some reason, the local water company is not set up to take automatic payments. The only bill I have that I have paid a late fee on in the last year is….. my water bill. That is proof enough that I should automate everything I can.
Some worry that making payments automatic will somehow lead to them paying large sums of money without knowing it. I still keep a tally on what the bills are, and review my account each month to see what came out. I simply don’t have to worry about making the actual payment. Which is nice, especially when I see one co-worker leave work for the third time in four months to pay their electric bill because they forgot to.
I don’t have to worry about an automatic payment overdrawing my account. Because, I keep a small buffer in my checking account, and I know what’s coming out and when. I simply don’t have to remember on that particular day to fill out the check and go to the post office.
Take automation one step further.
Not only should you automate your bills, you should automate your saving. Our retirement withholding is set to come out and go into our brokerage accounts every week. My check from my rental property goes in each month without me depositing it, or my tenant having to remember to pay. I made sure it was automated on his end as well. Then a set amount is left to pay the mortgage/maintenance bills, while the rest is sent to a brokerage account and invested.
My weekly budget is set at $850/week. This is after I pay myself first with my retirement accounts. My paychecks are direct deposit, I simply add our stubs together to make sure each week we meet that $850 threshold. The only part of our system that is not automatic is what we do with anything above the weekly threshold. This small amount of money, usually $10-$100 depending on how much overtime is on our checks, can go anywhere we want and usually varies. We are currently putting this cash toward our next car, as both of ours are getting up there in age/miles.
It’s important to set your budget with just enough wiggle room that a little is left over for undocumented overages (you will occasionally miss something) or unexpected bills. It’s nice when a doctor bill comes or the battery goes out in your car, to be able to pay it off with extra money in your check, rather than to dip into your emergency fund (or as we call it the “oh shit” fund).
Sustainability is Everything!!!!!
All plans look great on paper. The key is to finding a means to an end, which is doable today and ten years from now. We have found that the best plan is one which requires no action/motivation to execute. When our motivation diminishes, the system we set up continues to do it’s job.
No one can stay a hundred percent engaged all of the time. It just isn’t in our nature. With regards to finances it is crucial to be honest with yourself about your faults, then find a way to minimize the impact of those attributes.
For us, 90% of the time we are spot on with our budget and have no issues not spending beyond our means. It’s the 10% of the time that will wreck your finances. When we hit low points in our drive for freedom, we simply can’t spend more than we should. The cash just isn’t there. It is moved to safety before we can get our hands on it.
By inflation I do not mean the increase of prices of basic household necessities. I mean the lifestyle inflation in your household budget that tends to come with higher income. Many times at such a slow rate that it is unnoticeable.
Through the first few years of our marriage, we would get yearly raises. However, four years in, things were tighter financially than they were when we first got married. Our income was increasing at a rate of 3-4% a year, yet we had less to spend.
If you don’t watch your spending, you’ll be left wondering where the hell all your money went.
As if by magic, extra money appeared after we started to do a written budget that tracked our spending. And I’m not talking a little money, at first we suddenly had an excess of $500/month. Within a year, we improved at tracking and being disciplined and we suddenly had an extra $1,000/month.
Now, each year our income increases, but our spending remains almost constant. At most increasing by 2% as certain expenses float higher. The main point we emphasize is that our saving increases faster than our spending.
This system of prioritizing and then automating how our money flows is the corner stone for our financial health. Without it, we would fall pray to too many impulses. Instead, our financial freedom is set to autopilot.