Updated: Dec 3, 2020
What I’ve found super helpful in paying off credit cards, debt, and saving or investing has been setting everything up to be automatic. All of my monthly bills are set up with auto-pay. And, my investments are set up with auto-deposit. Every paycheck, money is going to investments, bills, rent, or to my cash spending account. Personally, I use three checking accounts: Bills and Investments Rent Cash Spending Bills and Investments First, I set up all my bills to auto-pay. I set my utility bills to “budget-billing” so they become fixed every month. I add up all my expected monthly bills. Then, I add my investment goal amount for the month. I set a portion of my direct-deposit to go to this account every paycheck to cover the monthly total. For investments, I auto-transfer a portion of each paycheck to Vanguard to buy VTSAX. If you have debt or a savings goal, this is where you would send money instead of investing. Rent This is the largest single expense that I have every month, so I have a separate checking account for it. I put in half of the rent due into this account every paycheck. This way, I never have a small paycheck on the 1st and I don’t have a large paycheck on the 15th, which would be in immediate danger of being spent. Cash Spending After bills, investments, and rent are covered, I send the remaining money to my cash spending account. This is my fun money and grocery money. I can do whatever I want with this money. This replenishes every paycheck, so I know exactly what I can spend until the next one. Generally, I use this account to pay off my credit card balance twice a month. Automate Your Life to Reduce Stress When we get a paycheck, our brains get flooded with ideas of what to spend it on. If you have one checking account, it may be hard to tell how much money is ok to be spent, and what you may need to cover your obligations and goals. If you give yourself the chance to make a choice between investing or buying something, you are playing a dangerous game. Buying an iPad for $500 instead of investing could be very tempting. The immediate gratification of having the iPad in your hands vs putting money into an account you can’t do anything with in the short term is hard. You need to take the brain’s emotional aspect out of the equation. The simple way to do this is by automating everything. With this strategy, you will never have to worry about bills. You will never have to worry about rent. You will never have to think about paying down debt, saving, or investing. Your money will do everything for you and you can sit back and relax. Example of $4k/Month Take Home Pay If someone has a $65k yearly salary, they will have about $4k per month take home pay. Assuming this person has $500 of monthly bills and pays $1k for rent, they would be able to invest $1,500 per month. All three checking accounts go to $0 at the end of the month. But, money is going to your investment account. If this person sticks to the plan and does nothing else, they will invest $18k per year. Investing $1,500 per month for 30 years at 10% average returns, this person will have $3,390,731 sitting in investments. You could buy iPads for every student in your town with this kind of money!