Friday, January 17, 2014

How I Automated My Finances For Guilt-Free Spending

Early in my time in the Navy, I became scared and jaded with automating bills. I went to Boot Camp and "A" School (technical school) at Great Lakes, IL. I bought a used Mazda truck right before I graduated high school, and let my dad drive it while I was in Boot Camp. I took it with me to "A" School.

My parents' insurance agent told me I had to insure my truck where I was stationed. I found out real quick that car insurance for an 18 year old single male was ridiculously expensive in IL. I did some research and learned that since I was on Active Duty, and my parents' home was still my home of record, that I could keep my insurance at my home of record, which was San Antonio, TX, which is much cheaper (plus the multi-policy family discount) than either IL or California, where I went to San Diego for my second duty station for specialized training in my weapon system.

The catch was, my insurance agent said I had to set my insurance up on auto-pay, which was the only way he'd go along with it. That worked for a little while until the Navy screwed up my paycheck right before my insurance was to come out of my checking account, which would have not only overdrafted, but resulted in my policy being cancelled. I was able to handle it with a phone call, and got back to where I wrote and mailed a check every month.

That left me terrified of autopay for almost 20 years. I insisted I wanted control. If something went wrong with my paycheck, I didn't want to have to worry about overdrafts ever again. I could always make a phone call and promise to pay once I had money.

I started reading Ramit Sethi around 2007 and have been following him ever since. I bought his book, I Will Teach You To Be Rich, when it first came out around 2008 although it took me a couple of years to read it. In it, several blog posts, and YouTube videos, he talks about automating finances.

It took me a while to warm up to the idea, but I decided now tools are better and I'm a little bit better insulated against pay screw ups (which I haven't had in a long time), so I worked out my own automation scheme.

I started with my bills. I realized that just paying bills when they come due is incredibly inefficient. Some months bills are higher than others, so you might have a lot of money one paycheck, but very little the next. So I came up with something, which I can credit my ex-wife for some of the details.

I created an Excel spreadsheet where I list all of my bills for the year, monthly, quarterly, semi-annually, and annually. I have one or two that are bi-annual, so I account for half of them each year. My spreadsheet includes car payment, insurance, utilities, memberships, subscriptions, Real Estate license, everything regular.

Since I get paid every two weeks, my spreadsheet calculates how much I need to set aside every paycheck. Every two weeks, 1/26th of all my obligations for the year is already known.

The next thing I did was set up a separate checking account. I already had one that I used for my GI Bill when I was going to college, since my ex-wife would notice extra money in checking and spend it (usually on bills, I'll give her credit for being trustworthy with money). Since I wasn't using it for school anymore, it became my bill account. I have a Visa check card for that account as well. So every paycheck, 1/26th of all my obligations for the year is automatically transferred to that account.

I review the spreadsheet at least once a month so I can make changes if needed, then adjust the auto-transfer to that account.

All of my bills are paid out of that account. I have some, like AT&T, set up for autopay on the Visa check card. Some, like the timeshare my ex-wife wanted that I kept in the divorce, go out directly from the checking account. My car is auto-drafted, as is my insurance.

The remaining bills that can't be automated I have to pay manually through my credit union's Web Bill Pay service. This consists of utilities, which still think it's the 1980's and we're still mailing checks. I have web bill pay mail a check for my rent to my landlord so I never have to think about it.

So with this automation, every paycheck, my 1/26th bills transfers to the bill checking account automatically. Then I transfer my ex-wife's child support and alimony into her account, since she's with the same credit union and I can do a member to member transfer. I should put it on Direct Deposit, but she doesn't complain as long as it's in there before she wakes up. One of the few positives of New Jersey is they leave me alone as long as I pay it reliably. I have some friends who divorced in other states that have to send child support and alimony to the state, which of course takes a service fee off the top and then distributes the rest to their ex-wives. That sucks. There is very little I like about New Jersey, but this is one positive.

After that, I take 10% of my income to give away. I've been doing this for years because I believe it's the right thing to do. I'm currently giving based on the portion of my net pay I get to keep after child support and alimony.

After my bills and obligations, child support and alimony, and giving come out, everything left in checking is MINE. I can do whatever I want with it. I can blow the whole thing if I want to. I usually don't, because this is also the funding I have to buy gas and groceries and books and clothes and go out.

If I have anything left in checking at the end of the pay period, I usually either transfer it to savings or use it to pay down the divorce debt. My ex-wife found a financial vampire, I mean divorce mediator who found more than $20,000 worth of hours to charge us for in the development of paperwork and stuff. He charged me over $1000 for phone calls to my retirement account, although I can't figure out what he did on those calls because when I called they knew nothing about it. In all fairness, he did do quite a bit of work on courtesy, especially at the end when I ran out of money and maxed out my credit and could not pay anymore. I should have done more research, but at the time I didn't want the divorce and she was in a hurry to get it over with.

The Divorce Industrial Complex is a cash cow that drains money from people who don't know any better. Since marriage means little in this culture, it should be about as simple and inexpensive to get a divorce as it is a marriage license. Screw the courts and lawyers; there should be a process to hammer out an agreement from an online template and submit it to the municipal clerk with a $35 fee. I would LOVE to see the divorce industry suffer the same fate as other industries, like manufacturing. Divorce lawyers and judges on unemployment or outsourced to India would ROCK!

That tangent aside, if you've ever considered automating your finances, this was an easy way to do it.

You can buy I Will Teach You To Be Rich from my affiliate link below. It's a great book, full of ideas and scripts you can use to save money, cut bills, and get good deals. It tells you the best accounts to have, the best credit card, and lots of other great info to live a rich life.

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