Make It Automatic: Six Tips to Help Put Your Finances on Autopilot

david bachGetting out of debt -- and staying debt free -- requires commitment, discipline and hard work. There are no shortcuts. But there is a way to make the job easier. It's something that I have been writing, teaching and talking about for years now. If you want to succeed, you must make your plan automatic.

If you follow the steps I cover in this article, you will truly have a foolproof, no brainer, "set it and forget it" financial plan that, I promise you, will work. This plan is based on the one I laid out in my New York Times bestseller The Automatic Millionaire and I have a full chapter covering the details of these steps in my new bestseller, Debt Free For Life. The whole process should take no longer than an hour to get organized.

Read and follow these steps. It's easy and, yes, you really can do it!david back - debt free for life coverAre you ready? Then let's go make it automatic!

1. Pay Yourself First Automatically

In my books, TV and radio appearances, and seminars I've always emphasized the importance of paying yourself first. This starts with having at least 5% of what you earn deducted from your paycheck and deposited directly into a 401(k), IRA, or similar qualified retirement account before the government takes its bite of withholding tax. Ideally, this deduction should total 12.5% of your income (the equivalent of one hour's work each day).

Whatever amount you decide, just be sure to make the process automatic. If you're not eligible for a 401(k) or similar program you'll have to create your own "pay yourself first" program with the use of an IRA. Just tell the bank or brokerage where you have your IRA that you want to set up a systematic investment plan -- where money will automatically be transferred on a regular basis into your IRA from some other source such as a payroll deduction or you use a free online bill-paying service that allows you to schedule regular automatic payments of specified amounts to anyone you want. Most banks and brokerage firms will handle all the arrangements for you, contacting your employer's payroll department on your behalf and dealing with all the paperwork.

And yes, you should do this first step even if you are in debt. After more than two decades of experience teaching people about money, I have come to believe with all my heart that it's a big mistake to put off saving money until your are debt free.

2. Deposit Your Paycheck Automatically

If your employer uses a computerized payroll system, you should be able to arrange with your company's personnel or human resources department to have your pay automatically transferred directly into your bank account. This is known as direct deposit. It gets your pay into your account without delay -- and saves you the trouble of going to your bank and physically depositing your check.

3. Fund Your Emergency Account Automatically

I've also long advocated the importance of maintaining and emergency cash cushion of at least three months' worth of expenses in an FDIC-insured bank account (not your regular checking account, but a separate one specially for this purpose). Until this emergency account is fully funded, you should have at least another 5% of your paycheck directly deposited into it. If your employer doesn't offer payroll deduction, arrange to have your bank automatically transfer the money from your checking account the day after your paycheck clears.

4. Pay Your Credit Card Bills Automatically

Call all your credit card companies and arrange to have all your bills come due on the same day of the month -- ideally, 10 days after your paycheck is normally deposited. (Virtually, every credit card company will work with you to change your due date if you ask them.) Then use your bank's online bill paying service to automatically make the minimum payment for each of your cards, five days before the bill is due. (If your bank doesn't offer free online bill-paying, think about switching to one that does.) If you want to pay more than the minimum on any of your cards -- and if you follow my DOLP plan, you will -- you can write a check for the extra amount. Making your minimum payments automatic ensures that you will never miss a payment deadline and get hit with late fees or penalty interest rates.

5. Fund Your "Extra Payments" Automatically

In addition to making all your minimum payments automatically, you should also automate your "extra payments." Based on your DOLP plan or "debt stacking tool," you know now which debt should be your No. 1 priority. If you add just an extra $10 a day to the minimum payment on your No. 1 debt, that's $300 a month that should be automatically added toward your debt each month. Arrange to have this amount (or whatever amount you've decided on) transferred automatically from your checking account to the appropriate loan account until it's paid off. Once you've automated this debt down to nothing, you should automate your No. 2 debt. And so on -- until all your debts are paid off completely. The same goes for your mortgage. If you add something extra to your mortgage payment, make that automatic too.

6. Pay Off Your Monthly Bills Automatically

There are two kinds of monthly bills: regular ones that are always the same amount (like mortgage, rent, or car payments) and those where the balance due varies (like phone bills, electric bills, or cable and Internet charges). You can automate payment of the bills that are a fixed cost by using your bank's online bill-paying service to have them automatically debited from your checking account each month. And you can automate payment of the variable ones by arranging to have them charged to one of your credit cards. As long as you keep your checking account adequately funded and you have sufficient credit available on your card accounts, this will protect you from ever missing a payment due date. My entire financial life is automated this way. As a result, all my bills are always paid on time, whether I am in town or not, and I never get hit with late fees or penalties.

You now have the information to make your financial life automatic -- congratulations! It's now time to put this information to work, and in doing so you will be taking a major step toward getting your finances under control and becoming Debt Free For Life!

If this is the first article of mine that you have read -- you should know that you just caught the tail end of my 10 Weeks to A Debt Free Life Series! You can also visit for more information to help guide you to financial freedom, and make sure to join me on Facebook, where you can ask questions, read articles, and share your thoughts with like-minded individuals.
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