Here’s the exact system I use to spend only 90 minutes a month managing my money. If you haven’t already set up your Conscious Spending Plan, I recommend doing that first.
CATEGORIES OF SPENDING
Use these as guidelines for your spending and tweak as necessary.
| Fixed Costs: Rent, Utilities, Debt, etc. | 50/60% of take-home pay |
| Investments: 401(k), Roth, IRA, etc. | 10% |
| Savings Goals: Vacations, gifts, house down payment, cash for unexpected expenses, etc | 5-10% |
| Guilt-free spending money: Dining out, drinking, movies, clothes, shoes, etc. | 20-35% |
Now let’s take your Conscious Spending Plan and make it automatic.
To do this, I use a concept called the Next $100.
This means, simply, where will the next $100 you make go? Will it all go to your investment account? Will you allocate 10 percent to your savings account?
Most people just shrug and don’t take any time to think about how their money will be allocated—which means it gets thoughtlessly spent and I sob uncontrollably.
But there’s a better way! It involves actually using the guidelines you established in your Conscious Spending Plan. If you did things right setting up your Conscious Spending Plan, you already know how much money you have to contribute to your fixed costs and how much is left over for investments, savings, and spending money.
So, if you made $100 and your plan resembled the example above, you might put $60 toward your fixed costs, $10 into your investment account, and $10 into savings, and then you’d spend the remaining $20 on whatever you felt like. Pretty cool, right?
Well, it gets even better, because once everything is automated, that money will be shunted from your checking account right into the appropriate accounts without you even thinking about it.
To see how it works, let’s use my friend Michelle as an example:
Michelle gets paid once a month. Her employer automatically deducts 5 percent of her pay—an amount she set up by talking to her HR department— and puts it in her 401(k). The rest of Michelle’s paycheck goes to her checking account by direct deposit.
(For simplicity, I’m not including taxes here, but you can control how much your employer withholds from each paycheck to pay taxes by speaking to your HR department.)
About a day later, her Automatic Money Flow begins transferring money out of her checking account. Her Roth IRA retirement account will pull 5 percent of her salary for itself. (That combines with the 401(k) contribution to complete the 10 percent of take-home pay for investing.)
| Invisible script | What it means |
| “It feels like I have more control when I know I can invest when the market is down.” | I can understand being nervous about automating your finances. The good news is you’re in control. You can always check on it and stop or change any setting you want. More important, be honest: Have you actually invested consistently every month? Does all your money go where it should? Do you automatically rebalance? If the answer is no, you’ve lost money. Let’s fix that. |
| “I only have a little money to start with. It doesn’t seem worth it.” | Start now and build the habit. As your income increases, your habits will be aligned and your system will automatically grow with you. |
| “I manually invest based on my variable income. It’s hard to automate when my income can vary widely.” | Irregular income is handled in this automation system. |
| “The honest answer is because I don’t know how.” | Thank god, finally someone answers with a real answer, not some concocted bullshit about how they want “control” of their investments. We’re talking about investment returns, people! Nothing wrong with not knowing this stuff. Read on. |
| “The fees are lower when I do it myself. I have more control of where my money is going (or, at least, it feels like it). It’s also a forced check-in on my goals and progress.” |
Budgeting is outdated. Build your conscious spending plan to take control of your finances and spend guilt-free on the things you love. Find out how in our FREE guide.
In the middle of the month, Michelle’s calendar reminds her to check her financial software to make sure she’s within her limits for her spending money. If she’s doing fine, she gets on with her life.
If she’s over her limit, she decides what she needs to cut back on to stay on track for the month. Luckily, she has fifteen days to get it right, and by politely passing on an invitation to eat out she gets back on track.
