Automate Your Finances to Spend Less Time Managing Your Accounts

Despite how simple the process can be, most of us are terrible at saving and paying bills. Here's a strategy to effectively automate most of your finances to keep you saving and out of late fee trouble.

Ramit Sethi of I Will Teach You To Be Rich.com has put together a system for managing your personal finances that only takes about an hour of your time each week. The video above fully explains the process in detail, but here's the gist. First, you want to set up your bills and other payments so they're all happening on the day you get your first paycheck of the month (the first of the month for most people). Once you have that in place, you want to set up automatic savings plans (Sethi suggests using Ing Direct) with sub-savings accounts that let you organize your savings into specific categories (vacation, wedding, etc.). You'll also want to send a percentage of your paycheck to your 401k, and have all of this happen immediately so that the money you see when you get paid is the money left when everything has already been saved. From there, you automatically pay as many bills as you can with your credit card (and then pay the credit card bill on pay day). For the bills you can't pay with your credit card (like rent, in most cases), you can use your online banking to automatically issue a check. This will leave a little money leftover in your checking account that you can use to budget for guilt-free spending and cash withdrawals.

As someone who's often fallen victim to the faults of automatic payments systems (despite frequently using them), definitely do not forget to stay on top of your bills nonetheless. Make sure you set some time aside at least once a month to do a little maintenance and make sure there are no bugs causing your automated finance system to break down. Sethi isn't suggesting a set-it-and-forget-it automated finance system by any means, but as someone who hates paying bills I know how easy it can be to procrastinate and ignore the task. If you set up a good automated system like this one, you'll be at a point where all you have to do is watch and fix the occasional problem as the most important things are being taken care of for you.

I started using mint a few months ago. Like you, I’ve had a mostly positive impression, with a few things to note:

1) It took me a while to figure out how to set up rules for classifying transactions. As you already noticed, it’s easy to reclassify a single transaction. To do that automatically in the future you need to change it on a single transaction first, then click the “edit details” link beneath the transaction. It will have a “rules” section in the details window letting you tell it to do that automatically in the future.

2) Related to the previous item, the rules aren’t quite detailed enough for my needs. For example, I have a Wells Fargo mortgage and Wells Fargo brokerage accounts. Every week, I transfer a fixed amount into my brokerage account. Mint misclassifies it as a mortgage payment. I would like to set up a rule clarifying that “When you transfer XX dollars to Wells Fargo, it isn’t a mortgage payment,” but you don’t seem to be able to set up a rule based on anything other than the description (name) field.

3) Like you, I’ve had a few problems with investments. I have investments with Wells Fargo (Personal), Smith Barney (Work Benefits) and Charles Schwab (401K):

Mint finds several accounts in Smith Barney for me (one for options, one for ESPP), but can’t seem to find my account for RSUs.

For one of my accounts, it was collecting accurate data for a while, but then incorrectly started showing my balance as zero for a while. Now it seems to be showing accurate information again. I’m not sure if it’s always that intermittent, but it has been flakey enough that I’ve considered hiding those accounts.

4) In the trends section I always end up with a *huge* uncategorized section. When I click to look more closely, it is made up entirely by transactions that don’t show up in the normal transaction list. They are all transactions related the in-brokerage transfers. Things like automatic daily transfers to the sweep account or dividend payments and automatic reinvestment get lost in the “uncategorized” abyss. Oddly, some of them (like a mutual fund purchase) get replicated about multiple times. I’m looking at it now, and I can see five copies of the same purchase transaction – so it thinks I spent five times what I really did.

To recap: I *do* like their service for basic money monitoring. Like you, though, I’ve had mixed results with the investments.

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Sunday, December 19, 2010

managing personal finances

Automate Your Finances to Spend Less Time Managing Your Accounts

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