Ramit Sethi, best-selling author of “I Will Teach You to Be Rich,” wrote that “automating your money will be the single most profitable system you will ever build.”
As busy veterinary professionals, we may not have the time to track each dollar going in and out on a daily basis. If we wait until we have extra time or extra money left over at the end of the month, we may never save for that well-deserved vacation or reach our investment goals.
So instead of telling yourself that you will get your finances under control “someday,” simplify your life by automating your finances. This means that instead of transferring money manually whenever you find the time or whenever you feel like it, everything is done automatically. And once you have a system set up, it requires extraordinarily little time to maintain.
Sounds good? Let’s get started!
Step 1: Set your spending goals.
First, take a look at your expenses. If you’re new to budgeting look back at how you have spent your money over the past 2-3 months. (Check out our previous blog post on Budgeting for Newbies.)
In his book, Ramit Sethi suggests 4 major categories of spending (slightly edited):
|Category of Spending||Examples||% of take-home pay|
|Fixed costs||Rent, utilities, debt etc.||50-60%|
|Investments||401(k), Roth IRA etc.||10%|
|Savings||Vacations, gifts, house down payment, emergency fund etc.||5-10%|
|Guilt-free spending||Dining out, movies, clothes, shoes etc.||20-35%|
Feel free to tweak these percentages to fit your own financial goals and lifestyle.
Once you have set your spending goals, you can move on to the next step.
Step 2: Automate your savings.
Let us acknowledge that most of us do not have the time or motivation to actively manage our savings and investments on a daily or even weekly basis.
But good news: you can use technology to help you grow your money.
You can take the accounts you have set up – checking, savings, investment accounts, and credit cards – and create automatic transfers to tell your money where it needs to go.
You will need to invest a few hours of your time up front, but you’ll end up saving a huge amount of time long-term. Each dollar that comes in will be routed to the correct account, and your savings and investment accounts can grow passively over time.
If you are a full-time relief vet, you likely have an irregular income, so you may need to tweak your system more often. Consider creating automatic transfers based on an average or a slow month. Set a reminder in your phone and “top off” your savings every 1-2 months as needed.
Let us take an example:
- If you are a relief vet who works as an independent contractor, you may decide to contribute 5% of your income to an individual 401(k) or SEP IRA. These contributions can be automated.
- If you are an associate vet, or you work in a practice where you’re classified as an employee, you may have access to a traditional 401(k). Contributions (let’s say 5% of your income) can be deducted from your gross income automatically.
- You could then automatically transfer 5% of your income to a Roth IRA, making up a total of 10% in investments.
- Next, 5-10% of your income could be transferred to a savings account, so it will be waiting there when it is time to plan a vacation or buy holiday gifts.
Ok, so now you have your savings goals covered.
Congrats on paying yourself first!
Now, what about your bills?
Step 3: Automate your bill payments.
Technology is your friend! Your fixed costs, like rent/mortgage, utilities, and debt, can be automatically paid by a credit card or debited from your checking account.
Most subscriptions and bills can be set up to be paid this way, and many others can be automatically paid out of a checking account by using the bill pay function on your bank’s web site.
Practical steps for linking your accounts:
- Connect your checking account to your savings account.
- Connect your checking account to your Roth IRA or other investment account.
- If you have been paying a bill by check that could be paid by credit or debit card, log into the website for that company and switch to automatic bill pay.
- Link bills that cannot be paid by credit card (i.e., rent or mortgage) to your checking account. Initiate the transfer from your checking account.
- If you have bills that must be paid by check, set up automatic bill pay with your bank, so that your bank will write a check and mail it for you.
- If you use a credit card, set it up so that it is paid from your checking account.
The fun part: now that you’ve covered your savings goals and paid all of your bills, the money left over can be used for guilt-free spending money.
The beauty of automating your finances is that you only need to do the work once. You may decide to adjust the percentages over time, but once your automated system is created, you can literally use it for life!
This article was generously written for Relief Rover by Dr. Meredith Jones and Dr. Phil Zeltzman of Veterinary Financial Summit. Check them out for more resources and useful information on gaining control of your financial life.