How I Automate My Finances

Summary

In this video, Thomas Frank discusses the power of automating your personal finances to save and invest consistently over time. He shares how he automated bill payments, credit card payments, retirement contributions, and investing deposits early on, allowing him to accrue over $300k in investments. Thomas emphasizes establishing a one month cash buffer first before automating to avoid overdrafts. He then walks through how to set up auto-pay for bills and credit cards, make 401k contributions directly from your paycheck, and arrange recurring transfers into investment accounts. Thomas stresses the importance of still manually reviewing your finances monthly when relying on automation.

Takeaways

• 💰 The habit of financial automation significantly contributed to saving $300,000 in investment accounts over 10 years.
• 🚀 Automating finances involves using software to manage financial tasks like bill payments and investments to meet financial goals.
• 📊 Financial automation ensures consistency in savings and investments, potentially leading to substantial growth over time.
• 💳 Starting with a small monthly investment can grow significantly through the power of compound interest and consistent contributions.
• 💸 Establishing a one-month cash buffer is crucial before automating finances to avoid overdrawing accounts.
• 💻 Utilizing bill automation for regular payments prevents missed payments and aids in maintaining a good credit score.
• 💱 Viewing credit cards as pass-through vehicles for existing funds, not for accessing credit, can avoid interest charges and build credit.
• 💵 Setting up automatic investments in retirement accounts like 401(K)s, especially with company matching, maximizes savings.
• 🔧 Regular monthly financial reviews ensure you stay informed about your financial health and the performance of automated systems.
• 📱 Exclusive content and in-depth financial planning strategies are shared on platforms like Nebula, complementing YouTube videos.

Q & A

What is the main topic Thomas discusses in this video?

The main topic is financial automation - setting up automatic transfers and payments to simplify personal finance management.

What is the key financial habit that allowed Thomas to save $300,000 over 10 years?

The key habit was setting up automatic monthly investments from an early age, which compounded over time due to market growth.

What are some benefits of automating your finances?

Benefits include: ensuring bills and debts get paid on time even if you forget, increased consistency in investing leading to higher long-term returns, and greater peace of mind.

What should you have before starting to automate finances?

Thomas recommends having at least a 1 month cash buffer saved as an emergency fund, so automatic payments don't overdraw your accounts.

How does Thomas use credit cards?

Thomas uses credit cards only as a pass-through for expenses he was already going to pay for in cash. He pays the full balance each month and does not carry debt.

What two habits does Thomas recommend in addition to automation?

1) Putting all bill due dates on your calendar. 2) Doing a monthly review of all accounts to stayon top of your finances.

Whatspreadsheet does Thomas use for financial planning?

Thomas created a custom spreadsheet with formulas to calculate his average income, expenses, savings goals, taxes etc. He made it into a free downloadable template.

What is Nebula?

Nebula is an ad-free streaming platform created by Thomas and other educational YouTubers, with exclusive content. It comes bundled with CuriosityStream documentaries.

What is the CuriosityStream documentary Thomas recommends?

Thomas recommends "The Ascent of Money" which looks at the history and development of money over time.

How can you access Nebula and CuriosityStream at a discount?

You can get Nebula and CuriosityStream for a year for less than $12 by going to curiositystream.com/thomas and signing up.

Outlines

00:00

😊 Introducing the video topic and sponsorship

Thomas introduces the video topic of personal finances and the habit of financial automation. He also mentions the video is sponsored by Curiosity Stream and promotes the Curiosity Stream/Nebula bundle.

05:00

💰 Establishing a cash buffer before automating finances

Thomas explains the importance of having a one month cash buffer saved up before automating finances. This acts as a safeguard so automated payments don't overdraw your accounts.

10:01

🤖 How Thomas automates bills and investments

Thomas shares how he automates bill payments like rent, utilities, and credit cards to ensure they never get missed. He also automates investments like his 401(k) and taxable investment accounts to consistently save and invest.

Keywords

💡Financial Automation

Financial automation refers to automatically handling financial tasks like bill payments, transfers between accounts, and investments deposits on a regular schedule. As Thomas explains, it provides consistency in meeting financial goals and serves as a 'safety net' against missed payments or savings contributions.

💡Compound Interest

Compound interest allows savings and investments to grow exponentially over long periods of time due to interest accumulating on top of interest. As illustrated in the baby investment example, compound interest turns consistent automated investing into a powerful wealth building tool.

💡Credit Card Autopay

Thomas advises setting up automatic minimum credit card payments to build credit score through consistent on-time payments. This prevents missed payments from damaging credit even if you forget or are unable to make manual payments.

💡401(k) Automation

401(k) plans allow automated payroll deductions directly into a retirement investment account. Automating 401(k) contributions ensures you consistently save and invest for retirement, made even more powerful if your employer offers matching contributions.

💡Cash Buffer

Having a cash buffer of at least 1 month's expenses allows you to safely set up financial automations without overdrawing your bank account. Thomas explains it as a prerequisite before automating finances.

💡Personal Finance Tech Tree

Thomas' personal finance 'tech tree' outlines financial milestones in logical progression, with basic budgeting and cash buffers leading to more advanced concepts like investing. This mindset helps guide optimal strategies.

💡Budget Spreadsheet

Even with automation, Thomas manually reviews his full financial situation each month. His custom spreadsheet budgets expenses, income, savings and more, enabling informed financial planning.

💡Early & Ad-Free Content

Thomas mentions Nebula, his ad-free streaming platform, as a place to watch his and others' videos early and without ads. An example is his exclusive budgeting video available on Nebula.

💡Ascent of Money

This CuriosityStream documentary details the history and development of money. Thomas recommends it for greater understanding of economics and personal finance.

💡Consistency

Automation enables consistent investing, bill payments and credit activity. This builds wealth and credit health over time without requiring ongoing manual effort.

Highlights

Financial automation allows your finances to run on autopilot so you never miss payments or savings contributions

Automating finances provides peace of mind that bills and debts will be paid even if you forget or are unable to make manual payments

Automating savings and investments leads to greater consistency, allowing you to save and invest more money over time

Consistent investing over decades can turn small monthly contributions into over a million dollars thanks to compound growth

Before automating, build a one month cash buffer in your bank account to prevent overdrafts from automatic payments

Autopay credit cards to maintain good credit and avoid late fees, while still paying statement balances in full each month

Automatically transfer money from checking to savings accounts and retirement accounts like 401(k)s each month

Put bill due dates on your calendar and review finances monthly even with automation in place

Custom spreadsheets can summarize income, budget categories, savings goals, taxes and more for financial planning

Sign up for Nebula and CuriosityStream bundle to get early, ad-free videos and access to thousands of documentaries

Nebula allows creators more freedom for controversial or demonetized topics without worrying about YouTube algorithm

Ali Abdaal's Workflow series on Nebula provides an inside look at tools and systems used to run his business

Real Life Lore's Modern Conflicts series on Nebula covers topics like North Korean history that would get demonetized on YouTube

Get 42% off Nebula and CuriosityStream bundle for under $12 a year, an unbeatable deal for streaming services

Curiosity Stream documentary "Ascent of Money" tracks the origins and development of money over human history

Transcripts

- [Thomas] This video is sponsored by Curiosity Stream.

You can watch a full-length companion video to this one

when you sign up

for the Nebula and Curiosity Stream bundle, linked below.

Hey, what's going on, friends?

So in this video, we are talking about something

that I haven't covered on this channel in quite some time,

which is personal finances.

Specifically, in this video,

we are gonna talk about the single habit

that more than any other

allowed me to save up around $300,000

in my various investment accounts,

over the last 10 or so years

since I started investing money back in college.

Now that number on screen right there

is not intended to be a flex of any kind,

and it's also very much not intended

to be something you should be comparing

your own financial situation against.

The only reason I am putting that number on screen right now

is to give a specific and concrete example

of just how powerful the concept

and the habit that we're gonna talk about today is.

And that habit is called financial automation,

or automating your finances.

This is something I talked about in my recent video

on seven books everyone in their 20s should read.

And I had a few people asking me to explain it

in a bit more detail.

So that is what I'm doing in this video.

So essentially, automating your finances

means first identifying the habits and the actions

that you need to take to meet your financial goals,

be it buying a house or getting out of student debt

or saving for retirement,

and then taking those actions and handing a lot of them off

to a robot.

Or to be more accurate, to a computer

or a piece of software or a website

that takes care of these actions for you.

So in this video, I'm gonna teach you

exactly why financial automation is so powerful,

why I practice it in almost every area of my life

where I can do it,

and we're gonna go through specifically

how I automate my own finances in two key areas,

bill automation and investment automation.

So first, let's start with the why.

Why do you wanna go through all the trouble

of setting up financial automations?

Well, there are a couple of key benefits here.

Number one, you get access to a safety net

and to huge peace of mind,

because when you automate your finances,

you will never miss a credit card payment.

You'll never miss a bill payment.

If there's something you are supposed to pay,

it is going to get paid.

Even if you're on vacation or you forgot to do it,

or I dunno, for some reason,

you're a sentient bear watching this video

and you're gonna go hibernate for the winter

and sleep for three months.

Doesn't matter, your stuff is getting paid.

Additionally, when you automate your savings

and your investments, your consistency goes way, way up.

And as a result, you're almost certainly going to invest

and save a lot more over the course of your life.

In fact, that is the reason I've been able to save

more than $300,000 over the past 10 years.

Back when I was a sophomore in college,

I opened my very first investment account over at Vanguard.

And because I had read about financial automation

in that book that I recommended

in a very recent video of mine,

"Your Money: The Missing Manual" by J.D. Roth,

I set up an automatic deposit from my bank account

to that investment account every single month.

Now at the time it was very small.

I think I started out with 50 bucks a month going in there,

just a little bit of money from my part-time job

being invested.

But over time, I increased those amounts.

And as I got into my career,

they became significantly larger.

And the most important thing is that

they were happening every single month.

And this consistency can be incredibly powerful.

And I wanna give you just a small example of that.

Say I would have started investing

when I was a baby, back in 1991.

Super smart baby Thomas.

And I was putting $500 a month into

essentially the entire stock market,

an index fund that tracks the entire stock market.

That's $500 a month which adds up to 6,000 a year

or 180,000 over the course of the last 30 years,

from 1991 to 2021.

But if they had done that consistently

and they never took any money

out of the market in the meantime,

their money today would be worth $1.6 million.

Imagine, saving 180,000 and turning it into 1.6 million.

It sounds crazy, but it's actually something

that can be done quite reasonably

by leveraging compound interest

and by being consistent in your savings.

And think about the person who is doing this manually.

If they're going in every single month

and making the decision to invest in the market

or to move money from their checking

to their savings account,

that's 12 times a year they have to go in

and manually do that, which means that

they are potentially setting themselves up for failure

every single time.

They might forget, they might be on vacation,

or they might justify to themselves

that they need to spend the money

on something else this time,

and hey, I'm just gonna get back onto it next time,

I totally swear, man.

That's one month they missed

the robot certainly wouldn't miss.

So for these reasons,

I think learning to automate your finances

is one of the most important personal finance habits

that you can learn.

But there is at least one preliminary step

that you should understand and make sure you have taken

before you start doing it,

especially when we're talking about investing.

And that is establishing what is called a cash buffer.

And to explain that, I actually wanna show you

something that I've been developing in my spare time

called the Personal Finance Tech Tree.

So I grew up playing games like Civilization,

where they had these tech trees.

You had to learn things like metallurgy

before you could learn ballistics, things like that.

And I've always thought about my personal finance journey

in a certain way that's kinda similar to that.

I have to do certain things,

either learn certain things

or hit certain financial milestones

before I can move on to the next thing.

So I've been thinking to myself,

could I create a sort of actual map

for these different financial milestones?

And I've been working on this in a tool called Whimsical

that I'm gonna show you here.

So basically I have these little mapped out paths here

for things like savings, regular income,

installment loans, and basic budgeting.

But the specific part that I want to zoom in on right now

is the one month cash buffer.

This is what I think you should establish

before you start automating your finances.

And we can see here that this leads to

first, a three month cash buffer,

and then to the start of your investing journey.

But the real reason you wanna make sure

you have a one month cash buffer is

if you are automating your investments,

you're automating bill payments.

You're automating deposits from your bank account

into maybe an investment account or a savings account,

and you don't want those automations

to draw your bank account down below zero.

So essentially, a one month cash buffer is

a buffer of cash for one month's expenses

beyond what you're going to spend this month.

And when you have established that in your bank account,

you can be sure that your current expenses,

your bills, your investments, your savings,

your debt payments,

are never going to draw your bank account down

to a negative balance.

Once you've hit that milestone,

I think it's a very good idea to start looking at

how you can automate different parts of your financial life.

So let's now talk about how I automate

the bill payments in my life.

Basically, anything that is a regular monthly payment

I have on autopay, if I can do it.

So that includes my mortgage, that included my rent

when I was paying rent for an apartment,

that includes my utilities payments.

So internet, gas, electric, water,

and that includes every credit card that I have.

And to go on a bit of a tangent about credit cards

for a second, I do not use credit cards as credit cards.

So your credit card gives you access to credit,

which you might even be able to tap

even if you don't have that much money on hand.

I do not view credit cards that way.

For me, a credit card is simply a pass-through vehicle

for money that I already have

and I was already going to spend.

I simply use credit cards to get access to airline points

and different perks and to build my credit score over time.

And I always, always, always, always

pay off my credit card's balance in full

every single month.

I have never once paid a cent of interest

to the credit card companies,

and I think that is a goal that all of us should aspire to.

The credit industry calls people like us deadbeats

because we don't make the credit card companies

a whole lot of money.

And I think everyone should aspire to be a deadbeat.

That being said,

maybe you have some credit card debt right now

that you can't pay off in full,

but what you should at least do is what I do.

Go into your credit card and enable autopay.

At the very least for the minimum payment.

And the huge reason for this is that your credit score

is determined by several different factors,

but one of the biggest is

your percentage of on-time payments.

And even one missed payment can be a huge ding

to your credit score.

So I always autopay my credit cards

because it is a safety net.

Even if I get knocked out for two months for some reason,

or I get lost in the jungle for some reason,

my credit card is going to get paid

because the autopayment is set up.

The other area where I use financial automation in my life

is with my savings and my investments.

So I have some automatic rules with my bank account

to have money transferred from my checking to my savings

every single month.

And then I have some different investments

that are automatically funded and deposited

every single month as well.

The main one is my 401(K) through my company.

That money goes into the 401(K) account

before I even pay myself my payroll.

And if you work for a company that offers a 401(K),

it's a very good idea to do this.

Especially if they offer matching,

because that's essentially free money.

And then I also have a few different

taxable investing accounts,

basically non-retirement accounts,

that I automatically invest into as well.

Now there are some good habits to practice

in addition to financial automation

that are gonna make sure you don't run into problems

in the future.

And I think the first one is to put bill due dates

on your calendar.

You at least wanna know

when your bills are going to be charged,

even if they are automatically being taken

out of your account.

You basically wanna stay on top of your finances.

And the second big habit actually

kinda goes into the exact same idea here.

It's to do what's called a monthly review of your finances.

Essentially, the robots are taking the actions for me,

but every single month, I'm coming in

and I'm staying on top of all of my accounts.

I'm making sure I know where all my accounts are,

how much money I have, and overall,

I'm making sure that I have a clear picture

of my personal financial health.

I think only a fool sets up machines

and then doesn't check up on them every once in a while.

So by checking up,

and by making sure I know everything that's going on,

I prevent myself from getting blindsided.

In fact, I take this one step further.

I don't just check over my balances.

I actually have a custom-built spreadsheet that I made

to do some financial planning,

to actually look over my average income,

my average expenses,

my average savings and investing goals.

And I even have formulas that will show me

how much roughly I'm gonna pay in taxes,

what my take home pay is gonna be,

and my percentage is split between

how much money I'm spending on my car, my housing,

how much I'm saving, and how much I'm investing.

I even turned this into a completely free template

that anybody else can download and use.

But what I haven't done up until this point

is actually make a video showing exactly how I use it

and how it works.

So I have finally done that,

I've made a complete and full-length companion video

to this video, going into how I use this template

and how I plan out my financial decisions,

and I've uploaded it to Nebula.

In case you haven't heard,

Nebula is a streaming service built by both myself

and a ton of other fantastic educational creators.

And on Nebula,

I upload my videos that you see here on YouTube,

both early and completely free of ads like this one.

It's also a place where we can experiment with content

that might not work very well on YouTube,

such as, I don't know,

a long and in-depth video on my budgeting strategy.

And there's a ton of other great exclusive content on Nebula

as well from a ton of creators that I personally love.

My friend Ali Abdaal for example,

has a series called Workflow where he goes in depth

into the tools and workflows that he actually uses

in his business and in his work.

And Real Life Lore, one of my absolute favorite channels

that I've been absolutely bingeing lately

has a series called Modern Conflicts on Nebula.

It is just as long and high quality as a normal video is,

but it covers some more controversial topics

like history of the North Korean, South Korean war,

things like that,

that would almost certainly get demonetized on YouTube.

So he puts that on Nebula,

and I have been absolutely loving that series.

But the best part about Nebula is that

it comes bundled with Curiosity Stream,

which has thousands of high quality documentaries

that you can stream from almost anywhere.

And right now, when you sign up

for the Curiosity Stream and Nebula bundle

over at curiositystream.com/thomas,

you can actually get 42% off of the yearly annual price.

You can literally get Nebula and Curiosity Stream

for a full year for less than $12.

It is seriously the best deal

you're going to find in streaming.

And once you do have access to Curiosity Stream,

one documentary that I've been enjoying recently

that I'd like to recommend to you

is called "The Ascent of Money",

which tracks the development of money

and goes into the history of it.

It's a really interesting series,

so I think you're really going to enjoy it.

And beyond that, there are thousands of other documentaries

covering economics, science, technology, nature,

and tons of other topics

that can expand your knowledge of the world.

So to get access to all those great documentaries

on Curiosity Stream, as well as Nebula

with all my early and ad-free videos

and all those exclusive videos on Nebula,

you can go over to curiositystream.com/thomas,

or click the link on screen right there to sign up.

Thanks as always for watching.

Hopefully you found this video helpful.

Hopefully you learned something new,

and if you did, hitting that like button for the algorithm

would be much appreciated.

Thanks again for watching,

and I will see ya in the next one.