Automate Your Finances: The (Almost) Guaranteed Way to Wealth

Want to know the true secret to growing your wealth? Automate it.

The more you shift and change and micromanage your finances, the higher the chance you’ll make a mistake or the wrong choice. Not to mention racking up extra fees and charges.

To be able to do this, there’s one key part you need to focus on first. And that’s your overall financial strategy. Get that right at the outset, and your goal becomes to ignore your money as much as possible.

Start from the end

Ok, we’re not going to spend a lot of time on this bit, because we talk about it quite a lot at Rosecut. But it’s important, so let’s cover it off. 

You need to know your end goal.

You need to understand the lifestyle objectives you’re trying to reach and the financial requirements to get there. Without a very clear view on what you want your life to look like and how much that life is going to cost, you can’t put a plan in place.

So picture it. The house you live in, the car you drive, the hobbies you have and the schools your kids go to. With this picture built up, you can get an understanding of what that lifestyle is going to cost you.

From this point, you put a plan in place that helps you get there.

It’s pretty simple really. You might have a goal to buy a new car. But from a financial standpoint that could mean some very different things. Are you aiming to buy a Vauxhall or a Ferrari? Both of them are ‘buying a new car’ but they’re going to cost vastly different amounts to achieve.

So get specific.

We got into this in a lot more detail in this article. In it, we break down exactly how to plan for your financial future, and offer some rules of thumb as to how to calculate it all. We also have a range of tools that can help, which you can access for free by downloading our app.

Cover your current costs

Ok, so now you know what your future objectives are. If you’ve had a read through our other article linked above and used our app, you should also know how much you need to save each month to make this happen.

The next step is to work out your current cost of living. This should be pretty easy. Open up your banking and credit card apps, and it’s all there.

It might take a little time to get it all together, but it’s important. Don’t worry, you’ll get to ignore your money soon, promise.

The reason this is so important is because these two aspects of your finances are closely linked. The goals and objectives are the ‘end’ while your current situation is the ‘beginning’. What we’re trying to do is make these start and end points as clear and defined as possible, so that we can be just as specific about the path to get from start to finish.

So when you’re doing this part, be just as specific. Include lumpy one off costs like holidays or car servicing. Include undefined figures like home maintenance (1% of your property value each year is a good ballpark figure) or medical expenses.

Sure, these figures probably aren’t going to be accurate to the penny, but that’s fine. What you want to end up with is a long list of costs, plus a bucket of these undefined costs which work as essentially your ‘rainy day fund’.

Get a Virtual Money Assistant (VMA)

Now we’re getting somewhere. You’ve got a financial outline of your future lifestyle, plus details of your current expenditure. There’s just one more thing you need to do.

You’ve got to automate the plan.

Think of it like setting up your own personal virtual money assistant (VMA). This is going to act like your own personal bookkeeper or money manager, carefully allocating your funds across all of the different places it needs to be.

There are a lot of different ways that can work, but we’re going to lay out one which we think works best. This is a five step process to totally automate your finances.

Create An Income Account

First, you should have all of your income coming into a single account. Whether that’s salary, dividends, rental income or anything else. This account is a regular bank account which acts as your cash management hub.

It’s the home of your VMA, because it’s where we’re going to provide all the instructions on how to manage your money.

Create an Expense Account

The next thing you want to do is to create a second account to cover all of your regular bills and utilities. These are your expenses which aren’t discretionary. We’re talking things like energy bills, phone bills, council tax, car insurance.

This account doesn’t need to be anything special, another regular bank account like your income account is fine.

Automate Your Expenses

Ok, now you’ve got those setup you can set up your first automation. Add up all of your regular ongoing expenses, and then set up an automatic transfer from your Income account to your Expenses account each month that is enough to cover all of them.

This transfer amount should include all your expenses, even the ones you’re not sure of like home maintenance.

Then, have all of your direct debits tied to this expenses account. It means that your bills will all be paid every month, automatically.

Create Investment Accounts

So now that you’ve automated your regular bills, it’s time to switch to longer term thinking. In order to meet all the goals and objectives you set out for your future, you’ll need to invest for the long term.

To do that, you’ll need to set up investment accounts.

The types of investment accounts you open will depend on your objectives. Long term retirement planning? A pension might be the right option. Saving for a car? An ISA could be worth a look. Saving a nest egg for your kids? See how a Junior ISA can make them millionaires in the future.

The specific accounts you choose are very important. If you’re not sure which are right for you, that’s where Rosecut can help. A big part of how we assist our client is to make sure their financial plan is running as efficiently as possible, by using the right accounts for their goals and objectives.

Automate Your Investments

Once all of your accounts are setup, now you simply set up a regular direct debit every month from your Income account into your investment accounts.

Make sure that the investment allocation is set up correctly or that you’ve got a professional investment manager on the case for you. Over time, investment portfolios can become unweighted, and they need to be regularly rebalanced to make sure they stay in line with the level of risk you want.

For example, stocks generally grow at a greater rate than bonds. If you start with a 50/50 split between these two asset classes, over time the stocks will grow more and represent a greater percentage of your overall portfolio.

This means it becomes riskier over time, unless you rebalance back to the original split.

Spend the leftovers

So now you’ve got your Income account, with a number of direct debits flowing out to fund your current expenditure and work towards your future goals. Everything that’s left, you can spend!

Not only does this plan mean your finances become completely automated, but it also gives you a clear view of how much you can spend on all the other things in life. You’ve already covered your bills and your long term investments, so if you want, you can go nuts with the rest.

Wrapping up

If you follow all of these steps, you’ll have a financial strategy which literally runs itself. Your money comes in, then goes out exactly where it needs to, without you having to do anything each month.

Once that’s done, the best thing you can do for your financial future is ignore it. Stick to your long term plan and avoid the temptation to tinker and fiddle. It’s almost certain to make things worse rather than better.

Sure, check in on your Expenses account and Investment accounts every now and then to make sure they’re all working as you planned, but leave the strategy alone.

Want to make sure you get that strategy right in the first place? Get in touch with us for a free initial consultation.