Want to spend life enjoying things like family, friends work, while knowing you’ve taken care of your financial house? Like you’ve cleared all the savings and bill payment clutter from your brain so you have more time to focus on the good stuff?
Well then, take the time to put your finances on autopilot. Pay your bills automatically and make sure your investment strategy happens the way you want and with ease.
No more constant thinking about if you’ve saved enough or paid a bill on time. I’m breaking autopilot finances down in this week’s podcast. Take a listen now to learn how to get rid of your financial planning headaches.
Hello, and welcome back to another round of, “Our Heart of Money Talks”. This is episode 12. Today, I’m going to talk about how to put your financial plan on autopilot. The idea is to set it and forget it. Let me start with why you need to automate your financial life.
Number one, reduce your workload. We suffer from decision fatigue throughout the day. In other words, the more decisions you must make, the more mental fatigue you experience. Should I save this month? How much? Where to? What bills are coming due? How should I invest this money? Oh yeah. And get a workout and eat healthy today, et cetera, et cetera.
You get the idea. By setting these recurring decisions on autopilot, you don’t have to worry about any of them in the future. You’ve already made the decisions.
Number two…why do you need to automate your financial life? It enforces discipline in the game of money and building wealth. Discipline wins always hands down. I know it’s not sexy or exciting, but it works when you automate your financial life. You’re committing your future self to doing the right things because you’ve made the correct decisions in advance.
You won’t have an opportunity to do the wrong thing.
For example, spending your extra moolah and not putting it in savings, because it will have already been set to occur. It also prevents you from making a gut reaction decision that may be wrong.
For example, selling your investments when they drop in value, based on a reaction to a temporary price dip in the market. Those who automate their savings, bill payments and investments end up far better off financially than those who don’t. So how do we do it? The first step is to automate your monthly bills.
This will save you time by not having to track possible late payments. Maybe getting this part of your financial house in order will help you in the next step, which is saving and automating it. Let’s talk for a minute about if you’re in the accumulation stage, meaning you’re saving years. This is your reminder to set up your savings plan, to be auto-matching your paycheque.
This is something that is taken out of your bank account and becomes like the mortgage payment in the title. Utilities, a cell phone bill…your savings are a bill payment that has to be paid. Now your present self might be cranky about this, but your future self is gonna thank you later. Trust me when setting up your automated plan, it means you have your fixed expenses covered.
The bills must be paid. Then you set up emergency savings, which is the cash bucket and include your retirement savings in there as a bucket as well. These are things that must be paid and there on auto, just like your fixed expenses, it becomes part of your must be paid on payday.
Now here’s something that you can also set up on autopilot that you might not have done.
If this is important to you in part of your family values and priorities, and you’ve taken care of your future self savings, you can even set up your vacation bucket or maybe even your Christmas present savings or birthday savings bucket, whatever expenses that are important to you and are coming up.
You can save every month, a little bit over time, rather than using a line of credit or going into debt later. I always share my Christmas story, how it’s easy to get off track, either buy a super expensive present or something really cheap. If I’ve created that savings bucket over the year, I can preplan and I have a perimeter of how much savings I really have.
So it’s helpful having these extra buckets actually keeps you in your lane when it comes to spending. So here’s the benefit of autopilot when you’re in savings mode. It’s dollar-cost averaging – scooping up the market so you’re investing and you’re putting away your savings at different points.
This means every month you buy into the market and get the average pricing, as opposed to that one-time purchase only once a year. Dollar-cost averaging when you’re investing meaning every month or bi-weekly have better returns over time. So you’re actually doing yourself a favor by setting up the autopilot.
Now here’s another little tip for the autopilot. As extra cash flow increases, which could be maybe you get that slight raise or a loan paid off, or I know for some people working for the government your first six months of Canada Pension Plan payments are taken off and then you get a little bit extra on your paycheque for the last six months because you’ve already prepaid into it.
You can automatically increase your savings by that amount. That’s the beauty of out-of-sight, out-of-mind. Now let’s talk about if you’re in the retirement mode, autopilot means your monthly income payments are set up. You sat with your financial planner and mapped out your income for the year.
We like to do this after tax season, when your taxes are done and you’ve received your notice of assessment, then plan the upcoming year’s income. We review it and then adjust the monthly fixed payments if we need. Maybe the tax that’s taken off, whatever needs adjusting happens ahead of time.
This means everything is on autopilot for the year. There should be no surprises. Now a part of this is also reviewing your asset allocation of your portfolio and your risk management. You should review the bucket where you’re receiving your monthly income. How does it look up at the markets? Go down the what-if scenario of needing your monthly income in a downturn.
Do we have a spot where there are no ups and downs and can we still pay out monthly income without selling in a loss? This is part of the autopilot conversation. The what-if Debbie Downer scenario of income payments is a conversation and planning that happens before you need it. That’s the beauty of auto planning, a defensive plan in place, ready to use if you have to.
So for example, in March, this year, when COVID hit and the market dropped to the bottom of the market on March 23rd, 2020, we turned on the top of retirement income from our defense plan. This became the autopilot rather than panic. It became, okay, turn on the button that says defense strategy and then ride it out.
We got this. This has brought the most ease and peace of mind in a time of uncertainty. That’s because we talked about the plan for not if, but when the market goes down and you know what hits the fan, here’s how we deal with it. It feels good to have a plan and helps you stick to it. You come out successful.
That’s autopilot and why you need it. You go on living life, dealing with all the other joys, family, possibly work, knowing you’ve taken care of your financial house. You’ve cleared all the clutter from your brain. You can go on and enjoy other things. So take the time to put your savings on autopilot, pay your bills automatically and make sure your investment strategy happens correctly and without needing your constant intervention.
This will give you peace of mind. That’s it. If you have any questions, send me a note, [email protected]. Until next week. Take care…