Ramit’s 12-minute guide to automating your accounts (video)

June 08th, 2010 - 26 Comments

This is an oldie but goodie, and one of the most important videos I’ve posted in my 100+ YouTube videos.

In this 12-minute video, I show you how to set up your bulletproof personal-finance system to automate your accounts.

I cover the entire system in extreme detail in my personal finance book.

To find out about the psychology of automation — including how it affects your money — check out my section on automating your personal finances.

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Ramit's 12-minute guide to automating your accounts (video)

This is an oldie but goodie, and one of the most important videos I've posted in my 100+ YouTube videos. ...

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26 Comments

 

Comments

  1. Good video – for passwords, check out KeePass. It is a great program that will not only store all your login information and urls, but will also generate random passwords for each. I then keep a copy of the database both on my home network and on a portable thumb drive. All I have to remember is the main password to open KeePass. I talk about it briefly here – http://tinyurl.com/25xhunn

    KeePass also has a Droid app, so it also resides on my phone.

    • I use KeePass and find it great for the many accounts I have to keep track of. Makes the whole process simple.
      I also keep a copy on my thumb drive.

  2. If you want to know why automating your finances is a practical move, consider my personal example. We’ve juggled a lot in the last 6 months, including buying a house, having a relative move in, and fitting in some extra work.

    The good news is our cash flow hasn’t suffered (it’s actually improved) and the main reason is that our bill pay and finances are pretty much automated. Without automation we would probably be late on some payments. We developed this system so we can check our balances once a week for 5 minutes to make sure everything is running smoothly.

  3. We have a system like this setup at our house. 401k gets taken out automatically pre-tax. Paycheck is transferred and automatic transfers to savings/roth are taken out a few days later. We use auto bill pay for our bills. it works great – automation is a man’s best friend!

  4. Thanks for the great tips Ramit! Automation makes things so much easier. One question that may be a little off subject: do you continue to build your credit if you don’t carry a balance on your credit card?

    • You want to set up a minor charge to happen at least every couple of months — say, a $8 monthly Netflix charge — because some credit cards will close accounts if they’re not actively used every quarter/year.

  5. @Jonathan – In addition to Ramit’s comment, you should understand that you don’t need to carry a balance on credit cards to continue building your credit profile. What you do need to keep an eye on is your credit utilization ratio (proportion of total available credit you use) since it accounts for a large chunk of your FICO score. Keep it under 30%, or preferably under 10% if possible.

  6. Very good point Joshua. That’s exactly what our mortgage lender was looking for when my husband and I applied for a mortage — 30% or under. We use our credit cards to earn points rather than using our debit card for safety reasons. Any balance we have only exists for a very short time because we have the cash available to pay for the purchase, before we use the credit card.

  7. @Rose M

    Watch your credit limit though… We have a card that we used for points purposes. The limit was $10K and we were charging and paying off approximately $4K per month. A review of my credit report looked like I was carrying a balance that was 40% of my limit.

    I called my credit card company and asked them to bump my limit to $20K. I explained to them that I felt it was hurting my credit score. They saw that I have a high credit score and that I always clear the card at the end of the month (or leave a very small balance) and granted my request.

    Something to think about…

  8. I’m 21 and in college. I’ve always used debit cards. I have part time jobs all year and don’t have any big expenses. So I haven’t gotten a credit card yet.

    Why do you say you don’t like debit cards? i’ve been using Mint to keep track of what i spend on and so far everything is working great.

    i tried searching this site for debit cards, but when i search the site crashes for some reason. (using google chrome).

    • It’s critically important to build credit. For example, when buying a $300,000 house, the difference between someone with good credit and bad credit is over $100,000 (over the course of the loan). Getting credit and using it responsibly is one of the most important things you can do.

    • Another reason its better to use credit cards is…if in case if there’s a fraudulent charge you’re protected…debit cards normally don’t offer those protection…money gone is gone or may be difficult to get it back…

  9. Is there any easy way to pay a mortgage using a credit card?

  10. One thing that changes this system is having access to a Roth 401(k). I try to max out the 401(k) limits on my Roth 401(k) first before maxing out my Roth IRA.

    BT
    yupfin.com

  11. I’m working to build a setup like this.
    How would you suggest a self-employed guy like myself implement this? I’m paid lots of different times of month, by various people and can make wildly differing amounts one moth to the next.
    Thanks
    sf

    • In your case, I’d suggest using two checking accounts, one that has only automated withdrawals (Roth in Ramit’s example, mortgage, CC bill), and one that is more easily accessible (for guilt-free spending, ATM, less predictable bills). You will likely to have to maintain a bit of a nest egg in the ‘first’ checking acct to ensure you have enough to cover the scheduled withdrawals during lean months, so you might consider one that pays a higher interest rate.

      I used this technique when I first automated our family finances years ago. I gave my wife the checkbook to the second account, and used the first to autopay our mortgage, Roth, etc. This took a lot of stress out of our monthly finances because she had control of the discretionary spending and I made sure we had the big picture covered. Worked out great for us then (when we were paupers), and it has continued to make our finances run smoothly. Automation also makes it easier to increase savings each year, too. Now we’re nearly maxed out -on 401ks & Roths, not credit cards!

  12. I love the information I’ve been getting from the Blog, Ramit. I think I’ve finally got the wife convinced that ‘your’ way is easier than writing out all the bills from memory in a spiral notebook every week or so. I let her do it, because she does a great job for the time it takes.

    Thought I’d share a few details, just to see if you’ve got some suggestions.

    Wife gets a semimonthly check in the mail, which unfortunately depends upon her hand writing her hours in and returning the timesheet to the office, AFAIK there is no option for direct deposit. (Government bureaucracy is a frustration to be sure)

    Our son receives a relatively small Social Security benefit, as he is intellectually handicapped at about a toddler level. If we save or earn too much, this benefit changes widely until he turns 18. (See above parenthetical)

    Third complication: Third job I found out of High School put my favorite computer and organizational skills to work and I loved the environment at first. (Ma and I totally ruined my credit, just trying to keep the lights on for a couple years there, I’m slowly fixing that but wife’s credit isn’t good either.)

    Anyway, the company got sold to a monkey who gets more collection calls on the office phone than I do at home. (His bank wouldn’t cash my check because he didn’t have the money once.) Weekly pay with paper check. I think it may require a bit more finesse than “schedule your bills a few days after your check deposits”. :)

    Thankfully, I ran across the Blog of Tim Ferriss, and followed a link to yours and here I am. I knew I needed to make some changes, and I’ve definitely seen some incentive to do so here. I’ve been inspired to, as you put it, “Get off my ass and do something.”

    1. Get my finances working for me instead of the other way around. > Tomorrow if at all possible (it’s midnight)

    2. Examine my workplace and see where my skills could improve the business further. I loved the “Briefcase Technique” and since I’m the one who has to deal with the problem areas on a daily basis, I *know* I can come up with workable solutions. (First step, replace the aging PowerPC Mac on my desk, ugh, love OSX, hate sluggish.)

    3. Look at what I really *do* at my present job, research a ballpark that is acceptable for such a position and negotiate for it. (I’m tired of being afraid of a forty-something that reminds me of high school) > Near term, 1-3 months.

    4. Get back in school. I’ve got plans to talk to a counselor at the local community college this week. I’ve never known what I wanted to do, and it didn’t seem to make a ton of financial sense to go into debt with no idea where I’m going with it, I could end up with a degree in art. :\ (I tend to have a long-cycle ADD I guess, I can focus very well on a project for weeks, but then I’ll switch completely to another obsession and forget all about the last one.)

    Okay, ramble over. :) Anyway, thanks for the inspiration, I’ve signed up for the e-mail list and I may very well go find your book and add it to my bookshelf. (Are you tired of parentheses yet?)

  13. hey ramit

    i bought ur book and is a follower of your automation. I have a quick question. What do you mean by “good checking account”? I currently use BOA checking account just because they have a lot of ATM around me so i can avoid getting withdrawal fees.

    Thanks

    Danny

    • BOA sucks. I recommend Schwab’s Investor Checking. They don’t hit you with 5,000 fees or try to nickel-and-dime you, and you withdraw from ANY ATM (BOA included) and get refunded for any ATM fees.

  14. This is a very risky approach!!!

    As someone that worked for a bank I can say that this approach is very risky. The risk is that you’re advocating that you set up for entities to REACH INTO your accounts to draw money. This gives away the power to take money. In order to set this up you have to give out your routing number and account number. NEVER give out that information to anyone! Even though the company you’re giving this info to is reputable they have people working for them that may not be.

    The correct approach would be to set up bill pay and auto transfers within your account to SEND MONEY to the other entities.

    The difference is who is in control. Is it you or the “other guys”.

    I can give example after example of people that have had trouble stopping others from dipping into their accounts.

  15. [...] Will Teach You to be Rich, and has a short video on his website to describe the process in detail (http://www.iwillteachyoutoberich.com/blog/automating-your-accounts-video/). In our firm, we use the First Step Cash Management System (click the video link at [...]

  16. [...] I’m always recommending personal finance guidance from this book by Ramit Sethi because he gives great advice.  There’s a Youtube video of him explaining PF automation here. [...]

  17. [...] How does he ensure that he will always have enough money in his checking account to handle all the automatic payments? Mr. Sethi has set up a detailed system for which accounts flow into which and on what dates the withdrawals and payments occur each month. [...]

  18. [...] How does he ensure that he will always have enough money in his checking account to handle all the automatic payments? Mr. Sethi has set up a detailed system for which accounts flow into which and on what dates the withdrawals and payments occur each month. [...]