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Automating your money — especially entrepreneurs and freelancers

Ramit Sethi

How can entrepreneurs and freelancers with irregular income automate their money?

Lots of people have been interested in the section of my book on irregular expenses and income — like entrepreneurs or freelancers –so I thought I’d go into some more detail on how I handle automation.

Brian D. writes:

I’m just wondering when you deposit money into your account does it automatically put 5% into savings, 10% into 401(k) …etc or is this a manual process. Also when the 5% goes into savings do you automatically split that into your savings account sub accounts, or is this manual?

Brian probably read my monster post on The Psychology of Automation: Creating a Bulletproof Personal-Finance System, which included this image:


Here are the answers:

1. It’s automatic (see how to automate it). But in your sub-savings accounts, you have to specify an absolute number, such as “withdraw $150/month from my checking account and put it in my sub-savings account for the new iPhone”)

2. Brian then wrote a followup: “What if you got $500 for your birthday and deposit this into your checking. Does it automatically spread itself out or do you do this manually?” While my bank (and most) require an absolute number, you can still semi-automate this. I deposit the money into my checking account, as usual, and then execute a monthly sweep on the 25th of each month, where I tidy up all loose ends.

You’ll remember my sub-savings account (how to use a sub-savings account):

Here’s how the monthly sweep looks in Google Calendar:

Google Calendar for personal finances

Note that I don’t recommend you sock away 100% of unexpected earnings. In fact, I force myself to spend 25%-50% of any unexpected money within a month, a technique I developed to keep motivating myself to earn unexpected income. (For that, I keep a “tobuy” tag in delicious.)

Just like GTD, the key with your personal finances is to set up structures to catch the wild one-offs and put them aside for a regularly scheduled time, usually once/month.

Once you set this system up, your money will flow from your paycheck to your investment accounts (401(k), Roth IRA, etc), sub-savings accounts (like for the new iPhone), and down to your checking account for guilt-free spending — all automatically.

Read more about automating your money.

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  1. avatar

    Ramit – when I was making most of my money as a freelancer, I used to do things slightly differently. Instead of making my checking account my primary cash receiver (now that I have a regular income I do exactly what you suggest), I would make my savings account the big pot and then pulled from there. That way, when I got a big check for some work, I didn’t see it in my checking account and think that was money to spend. Instead, I pushed ‘spending’ money to it. I also had a separate checking acct I pushed the money I paid my bills to.

    I realize this is just semantics, really, but it gives you the illusion of a regular paycheck even when you only get really big deposits occasionally.

  2. avatar
    Christopher Lee


    If you are considering a tour to China, my friends just started a touring company targeted towards the younger demographic. It may be worth investigating?

  3. avatar
    Eric Nakagawa

    Hey Ramit, I’m a partner in a software company. We have a CPA but I never feel she’s really worth what we pay her for … quarterly payroll costs about 900$ can I trim that cost and do it myself?

  4. avatar
    Ramit Sethi

    Hey Eric. Honestly, taxes at that level are pretty complicated. Sure, it’s possible you could do it yourself, but your business is software, not taxes — so I’d probably pay to get someone else to do it. If you’re not sure you’re getting a fair price, check with others on how much they pay. Email me for some more details if you’re curious about my accountants.

  5. avatar

    I like the idea of automating finances, but the real missing link here is the ability to have transfers occur truly automatically according to a set of rules (10% of each deposit goes into savings, 25% of each paycheck deposit is also transferred to an account for rent, each week, 15% of luxury account balance over $X is dropped into checking to spend, etc.). Is there any good reason why online banking services don’t offer this? If not, could it be possible to have some type of 3rd party service add this capability (given authorization and credentials)? I’m spending a good bit of my free time learning programming, and it’s obviously not a difficult type of functionality to implement in software, but I don’t know what kinds of red tape might exist within the banking establishment to slow down progress. Any thoughts?

  6. avatar
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  7. avatar
    Aaron Brown


    In order to keep costs down, I share an apartment with two other guys. I have found it quite helpful to setup a separate ING checking account to handle bills, cleaning supplies, and other misc. items. Everyone has access to the account via the web. We all contribute an agreed upon amount each month and I recently setup automatic bill pay. This has taken the headache of chasing down money that I could better use elsewhere.


    BTW, I love your new book!

  8. avatar

    I agree with Dees, and I was curious about this myself when I was setting up my accounts after reading your book. It would be much easier to do percentages for those of us paid hourly with varying hours worked per pay period. I haven’t been able to find anything so I thought I’d ask as well.

  9. avatar

    Interesting stuff, must try to buy the book. Thanks

  10. avatar

    I love to use Google Calendar for my misc financial reminders too!

    I make an agenda/list and then put a big fat DONE after its taken care of.

  11. avatar
    Eric Poulin

    Google Calendar now has tasks also so you can feel even better about have that DONE with an official looking line through the task,

    There’s always also for reminders like this.

  12. avatar
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  13. avatar
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    […] Automating Your Money – ever since I stopped being someone’s employee, I had this question – how to automate savings when there’s no longer a steady paycheck and when income fluctuates from one week to another and from one month to the next. Well, I wasn’t alone in trying to figure this one out and neither are you, thanks to Ramit’s most excellent article. […]

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  16. avatar
    David Ramirez

    I had a great father who successfully managed an academic think tank with a $10M budget but he was horrible managing his own money. Gas would be turned off, cars would be repossessed periodically, etc. Income wasn’t the issue – personal money management was. While he made up for the financial insecurity with being a great dad, I just wish he knew about this system. You advice doesn’t only create a solid financial foundation – it can create more stable families!

    Thanks for sharing!!!

  17. avatar

    Hi Ramit! You’re great. Thanks so much for all the advice.

    I have a question though about the 401k. I am a freelancer/independent contractor and currently I live outside the U.S. though I work for a U.S. company and get my paycheck deposited in my U.S. checking account. I investigated and found that at my home bank, Schwab, I could open a Roth IRA as well as an individual 401k and manage my retirement accounts that way. I opened the Roth IRA and that’s going great. I am still working on getting the 401 K, but I was wondering if it makes sense to do it. It seems like the benefit of a 401k is when you are having your employer put it in there before any taxes come out, that way you make interest on those unpaid taxes until retirement and then finally pay the taxes when you retire but you get to keep the interest. However, my employer doesn’t take any taxes out because of the fact that I am living outside the U.S.; therefore, would it make sense to use the 401k in that situation? If not, should I just double up on the Roth IRA? I would LOVE to hear your opinion on this. I’m not sure if there’s something I’m missing or the way I’ve interpreted the situation makes sense.

    Thanks so much. You are building a better future for so many people and I don’t know how to thank you. I wish you success and happiness in your endeavors

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