In the last post, we talked about getting to the Automate/Diversify part of managing your money.
It is actually the simplest part of all because you only do it once and forget about it (unless you want to add or change things).
Here’s how it works: Every time you get paid, automatically send or transfer your money (automate) in a number of different accounts (diversify).
To do this, you will need at least 15 accounts. These accounts fall into 4 categories.
Here are the category and accounts listed in priority order:
Category: God
1.) Church/Charity Account - Do this first. In order to prosper, you must give. You will be blessed if you are a blessing to others.
Category: Government
2.) Uncle Sam Account – If you are always scrambling to pay off your taxes before tax day, why not prepare for it? If you are fortunate enough to get a refund and don’t want to spend it, use this account to hold it – you can always transfer to another account later.
Category: You
3.) Emergency Account – You never know. Be prepared for anything. Have a goal of at least 6 months of your income.
4.) Retirement Accounts – These can be in many form – 401K at work, IRA’s, Roth IRA’s, etc. – Have a goal of at least 12-20% of your income.
5.) Dream Account – Think big. Use online banks like INGdirect.com or etrade.com
6.) College/University Account for kids – Need I say more? Your kids could be contributors for this account too. This could be used to set up 529 accounts for example.
7.) Vacation Account – Be realistic here – don’t go on vacation without being able to afford it – figure out how much you’ll need and divide it by payments – then forget about it until vacation time.
8.) Christmas/Holiday/Birthday Account – You know these days will arrive – again, prepare so that you may stick to your plan and not go overboard.
9.) Investment Accounts – Use brokerage houses like Sharebuilder.com, which make it very easy to set up automatic investments. It’s so simple, you could kick yourself for not doing it sooner.
10.) Savings Account – Use this account as back up for your primary checking account, which we will refer to later.
11.) House Account – Are you saving up for a house? Do you have a home already? Use this account to save for or put in extra payments instead of sending it to the mortgage directly – yes, it makes sense.
12.) Wife Account for her shopping needs (groceries, clothes, etc.) – The love of your life has financial needs – use this account for her stuff (figure out between the two of you what she would be responsible for).
13.) Business Account – If you own a business, you’ll need a business account. If you want to own a business, guess what – you’ll need a business account.
14.) Family Papi Account for your needs – Finally an account for your needs! Yes, those golfing outings would come from here.
Category: Them
15.) Primary Checking Account for household bills – Ah, yes, these must be paid. When you do your Measurement step, should be able to figure out what you need to pay and when. Make sure you have enough directly deposited in to handle automatic payments out.
Notice that the Category “Them” is last. Look who’s first. Nice, huh?
Now, the less bills you have the higher percentages you can put on the other more important accounts.
Given all these accounts, you have to:
A. Find banks/brokerages you can start free accounts with and name them any way you want.
B. Link them all either from your checking account or using direct deposit for all of them.
The percentages or $ amounts you do for each is up to you.
The important thing is that you are not relying on remembering to do things – it’s all automatic.
Also, since, you have all separate accounts, you will know what account to use when any situation arrives.
This helps you stay focused, minimizes your risks, and keeps you on that prosperous path you need.
Sound good? Now, get it done, and then – forget about it.
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