One of the biggest misconceptions about personal finance seems to be that it is complicated and takes a lot of work.
However, by putting your finances on autopilot, it actually takes very little effort to create a sound financial future for yourself.
Most people, us included, are inherently lazy. Sometimes it is easier to just not think about something than it is to put time and effort into sorting it out. However, if you don’t put thought into your finances, then there is no way you’ll be able to achieve a goal like early retirement.
An excellent alternative is to put your finances on autopilot. Think about your finances for a little bit at the beginning, start a plan, set it to autopilot and then forget about it, with the occasional sanity check.
Before you can set things to autopilot, you need to come up with a plan. What do you want your finances to look like in a year? Five years? Ten years? Then, map out how you’re going to get there.
If you decide in five years time you want to reach $100 000 invested in a Vanguard Index Fund but you map out a projected savings and you’ll only get to $90 000 in five years, that’s okay! In five years you will still be $90 000 better off than you are today. It’s also amazing how not only your money can compound, but your savings can too. Once you’re saving hard for a year or two, it will become second nature and you’ll find more areas you can cut costs and therefore save more. You just might reach the original goal you set!
Let’s use the above example again, saving $100 000 in five years, or 60 months. That means, without taking compound interest into account, you need to save $1667 a month, or $770 a fortnight (noting there are 12 months in a year but 26 fortnights, so it’s not an exact halving of the first amount).
At the moment, you’re comfortably saving $700 a fortnight, but you need to come up with $70 more savings. You decide to switch to a cheaper mobile phone plan, saving you $30 a fortnight. You also decide to cut your weekly cinema trip, making up the remaining $40 a fortnight. You still get great mobile phone service and you start watching your movies on television or Netflix. You’ve got the $770 a fortnight to save!
The trick now is to put that money away. Consistently. Log into your bank account and set up a direct deposit or BPay of $770 to your Vanguard Index Fund (or savings fund or mortgage offset account, wherever you choose to save). Make this a recurring payment, with no end date. It is highly recommended you make the date of this payment the day you get paid.
That’s it. That’s all you have to do.
Now, every fortnight, $770 will make it’s way into your Vanguard account. You’ll never be unable to save that because it is leaving your account before you get a chance to spend it.
In five years time, when you log into your Vanguard account, you’ll be astonished at how much you have saved. With very little effort or management on your part- just a little bit of time coming up with a plan and less than five minutes to set up the automatic deposit.
This also works excellently for paying off debt. You could instead set up an automatic payment of $770 to your debt and before you know it, it will be paid off and you will have paid significantly less interest than if you hadn’t set up that automatic deduction.
Why This Works
By placing your savings on autopilot, you are always going to save.
If, instead, you decide that you’ll just save whatever is left over at the end of your pay period, you’re likely going to save a lot less than you could have. Suddenly, that $770 will be wittled down as you go out to dinner, buy coffee or go shopping.
By sending those dollars straight into savings before you have a chance to spend them, you’re eliminating the possibility of accidentally spending them on something other than your future stash.
We get paid fortnightly. Every fortnight, our pays are directly deposited into our offset account. From there, child support is automatically deducted. We used to send my entire pay to Vanguard, but we’re now keeping that in the offset account in an effort to pay our mortgage off quicker. Vanguard will continue to compound on its own.
Each month, our credit cards are automatically paid off, also from the offset account.
I do check the credit cards semi-regularly to make sure no fraudulent charges occur, but I only check our Vanguard accounts quarterly, when dividends are paid. We do not track daily price fluctuations, because they don’t matter to our long term investing plan.
I probably spend less than half an hour a fortnight doing anything with our bank accounts, and I could do a lot less. I just like to check them fairly regularly, but there would be no change to our outcomes if I stopped checking them so frequently. I only do it because I have an interest (Poopsie might say obsession) with personal finance. If you didn’t have that interest, this would take you less than five minutes a fortnight.
Do you have your finances on autopilot? Will you be putting your finances on autopilot after reading this blog post?
Yeah, I really need to stop checking Vanguard so frequently. It’s new and shiny and exciting (actually, not so much) at the moment. We do autopilot for as much as we possibly can, including bills. I know many people don’t like to do bills, but I play with our budget nearly every day, so I can be on top of any discrepancies quickly. We also salary sacrifice into Super. That one I really like, because I don’t pay much attention to my payslips – it’s pleasant to see it growing with what appears to be no effort at all!
When mine was new, Mrs ETT, I checked it all the time! So I totally understand this.
Auto-piloting bills is great. It means we never forget to pay one and, like you, I am able to notice any discrepancies when I check Pocketbook at the end of the month.
Yes, thanks, excellent post, and a lot of similarities with my situation. Like Mrs ETT, I struggle with the ‘not checking Vanguard’ often bit as well, even though I’ve seen the references to research that tells me this is not good for your happiness levels!
Hi FI Explorer, thanks for stopping by. Yes, I sometimes fall into the trap of checking it more often than I should too. It can be very tempting. But realistically, it just doesn’t significantly change that often, so I try and convince myself to just leave it alone. A work in progress to be sure 😉
I felt I was a bit odd until I read to the end and saw that you do check it more often, but you don’t have to, that’s exactly me too! I have a plan, and it all happens, I just like tweaking it regularly.
My only suggestion on top of this would be to up the $770/fortnight with any payrises along the the way rather than falling victim to lifestyle inflation.
Yes definitely, that’s a good one. We always try to pretend the pay rise never happened, we find we get to our goals much quicker!
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