How I Automate My Finances
Summary
TLDRIn 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
😊 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.
💰 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.
🤖 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.
Mindmap
Keywords
💡Financial Automation
💡Compound Interest
💡Credit Card Autopay
💡401(k) Automation
💡Cash Buffer
💡Personal Finance Tech Tree
💡Budget Spreadsheet
💡Early & Ad-Free Content
💡Ascent of Money
💡Consistency
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.
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