Why I Automated My Savings

What was the first personal finance book you read?

The first personal finance book I read was “The Automatic Millionaire*” by David Bach. While some of his findings have been undermined recently (see articles regarding the “Latte Factor” here, here and here), the idea of “automating my savings” stuck with me because it was simple and actionable.

Automating ones savings, Bach explains, requires structuring accounts so that a set percentage of your income is automatically transferred into a 401(k), taxable investment account and/or savings account before you can ever seen those funds in your account. Set my savings goals and then forget them day to day? Sold.

If it’s so simple, why didn’t you implement it sooner?

Prior to reading Bach’s book, I had the best of intentions when it came to saving. I really did! Every now and then, I would stress in the presence of spreadsheets and notepads and commit to pulling $1,000 a month into a savings account and mayyyyybe setting aside some money in an IRA. Perhaps I would even get around to figuring out my other tax-advantaged account.

My intentions never progressed to action and, unfortunately, I would (i) run out of money before I could ever get around to transferring it to any of my savings goals or (ii) move the money into my savings account only to “revisit” the decision later in the month and guiltily transfer the cash back into my checking account.

A year and a half after finishing Bach’s book, I acknowledged reality. In order to be financially secure, I needed to take flexibility out of the equation. In addition to knowing what hadn’t worked in the past, I knew that, at that time in my life, I was paralyzed by decision-making and would likely hem and haw myself out of ever committing to a financial decision.

After re-reading the book and consulting with friends who were a bit wiser with their money, I built a schedule – based on pay frequency and:

  • Set my 401(k) contribution to 10%. This seems high I know; but I also knew I needed to feel a little pinch and told myself I would adjust to the reduced paycheck. I did.
  • Set up recurring contributions to “Emergency Fund”. I also set up a recurring “bill pay” transaction from my checking to a high-yield savings account at Ally to fully fund my emergency fund. The extra step of having to wait several days to get the money back to my checking account deterred me from “stealing” from my savings.
  • Automate Investments. I also set up an automatic transfer into a taxable brokerage account at Vanguard, which I invested in low cost index funds.

It’s been a few years since I set up that initial “system” and I have seen my net worth triple thanks to consistent and systemic debt repayment and savings. During that time, I was able to successfully manage my money without guilt, distraction or anxiety.

What about now? Over the past two years, having adequately stretched my “savings” and “disciplined decision making” muscles, I took off the training wheels and take a more active role in managing my savings goals. It’s still not a “manual” process (because I simply do better with automation) but I goal set quarterly and annually and then set up recurring transactions (e.g. contributions to 529, 401(k), IRA and brokerage account) to match those goals.

How about you? What did you learn from your first personal finance book? What do you carry with you today? Have you automated your savings? If so, have you run into any issues?

-Barlow

* Barlow Street is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com or whatever). If you use this link, I may receive a commission.

Budgeting for June.

As I previously shared, I budget using You Need a Budget (YNAB)*, a zero-based budgeting program. I thought it might be interesting if I shared my monthly budgeting process, so let us get to it.

Since I’ve been trying to take advantage of my large deck (and my mornings), I quickly brewed some coffee this morning and enjoyed it on my deck while I worked through my June budget. With May wrapping up and summer getting into full swing, I wanted to make sure that I was budgeting enough in my “fun” categories to avoid overspending. I started by quickly jotting down upcoming events – like dinners with friends, dates and holidays and then working through my YNAB categories.

Housing. Generally, my housing costs stay the same each month, including my utilities since I signed up budget billing. However, my escrow is now self-managed and the monthly amount is “paid” into a sinking fund in my high yield checking account at SoFi since Wells Fargo made some errors calculating the correct balance last year. This way, when the relevant bills for property taxes and insurance come in, the money will already have been set aside. Otherwise, there are no changes to my usual budgeted amounts.

I don’t have a phone bill since my job handles that bill.

Food. I stocked up on chicken and other staples on Tuesday and am planning my meals around those items for June, so I am lowering my grocery budget to $150 (from $200). I also have a few dinners with friends planned for this month so I’m increasing my dining out budget to $75 (up from $50).

I generally pack my lunch but budget some “oops” money for days that I forget.

Health. Since I am getting re-certified as a foster parent, I need to get a physical and a TB test in June. I’ve also been feeling a little down and have been thinking about returning to counseling. Based on those upcoming expenses, I’m budgeting $125 for June, which should cover my co-pays.

I added $0.47 onto the $125 I budgeted to make the category number even.

Getting Around. Despite having a paid off car (yay!), I feel like I budget so much for transportation. 😒 One of my most expensive items is gas but while I’m taking a couple of trips out of town in June, $150 in gas should be enough. I’d also love to use some of my car cleaning sinking fund to get my car detailed but that is TBD.

Except gas, my transportation categories are sinking funds that I contribute to monthly to prepare for the expense. I budget the same amount each month for these categories and June should be no different.

Household Expenses. My house feels a little stale and dusty, so I’m adding $50 to my “Cleaning Service” sinking fund and will use the money sometime in June to arrange for a deep clean of my house. I’m also budgeting $300 to my durable household items category to bring that line item back up to $1,000: it dropped down in May when I purchased a replacement vacuum.

Savings. I’ll continue to save aggressively to ensure that I meet my 2019 Financial Goals, while also diligently saving for other priorities such as my niece’s college fund, a future adoption and the shenanigans of my biological family.

Fun Money. In addition to my subscriptions (Netflix, Hulu, Apple Music, Costco and Prime), I try to thoughtfully monitor how much money I am spending on “Treat Yo’ Self” lifestyle choices. This month is kind of spendy, but doesn’t run afoul of my financial priorities or values.

Since I’m dating someone, I’m budgeting $50 for a couple of tickets to a tequila tasting I think we might enjoy for a nice date night. I also have my eye on a couple of books that might not be at the library yet, so I’m budgeting $50 to my “Interests” category as well. Other than budgeting a bit more in my hair and skincare category to account for some box braids I want to get next week; everything else should stay the same as they have been since I paid off my student loans.

Giving. I committed to matching donations to a charity last month, so my charitable giving is a bit higher this month. At $200, my budget for gifts is also higher due to a nephew’s birthday and my propensity to buy my niece things she does not need. As for Christmas, I always budget between $75-$100 dollars per month so I don’t have to stress about buying presents at year end.

Once I get to the bottom of this long list in YNAB (and top up my “Taxes” sinking fund), I double check the final figures against my one-month buffer, move any “leftover” money into a carry forward category and “lock the budget” by printing a copy to .pdf and saving it in my electronic financial binder. This process allows me to see where I moved money around during the month (usually between groceries and dining out) and adjust accordingly in the future. In sum, it keeps me honest.

How about you? What is your budgeting process? How to you react to unplanned expenses when they occur?

-Barlow

*The link above is an affiliate link. While I don’t receive any commission if readers sign up, I do get a free month of YNAB if you sign up after the free trial.

Introducing “Barlow”

IMG_2270Hi! And welcome to my blog!

I’m “Barlow”, a Chicago based thirty-something mildly obsessed with budgeting and a good cup of coffee.

What experience do I have with money? Not a lot! Until 2013, I never dealt with “money” because I never had any. Growing up, I lived briefly with my mother before being shuffled through a series of foster homes.

The U.S. foster care system is notorious for a lot of things but teaching money management or “life skills” is not one of them. In my teens, I watched anxiously as my foster siblings “aged out” of foster care – turned eighteen without being adopted – and into adulthood where they struggled to make ends meet. I would get physically sick to my stomach as I wondered how I was supposed to “make it” when no one I knew had figured it out.

With a non-existent safety net, a checked out caseworker and foster parents who weren’t particularly interested in how things turned out, I knew my margin for error was razor thin. Figuring that it would provide me some needed structure, I enrolled at a private four-year college at seventeen using Pell Grants and a host of private scholarships. Despite having generous scholarships (83% of my cost of attending was covered), I graduated four years later with $20,288 in student loans I no idea how to repay. 

Still, I’d landed a job in DC working for a congressional member and moved to DC two days after graduation and tried, with limited success, to pay down my student loans. A few years later, I followed a boss’s counsel (and a large scholarship) to law school in New York. Despite my scholarship, I increased my debt load by $87,986.  Accounting for accrued interest and my outstanding undergrad loans, I had more than $100,000 in loans when I graduated from law school in 2013.

I began working after law school at a great firm – although the hours left much to be desired – and considered myself “pretty good” with money. After all, I had a 401(k), a savings and investment account – and I was paying more than the minimum on my student loans. Yet, I found myself staring at spreadsheets often and spent a lot of my time worrying about losing everything.

After taking an honest look at my finances and reading more personal finance articles than its probably healthy, two things became obvious (i) I did not know enough about money to be “good” with it and (ii) it was how I was spending money that was causing anxiety, not how money I was making. I committed to learning more about my relationship with money, paying off my student loans, spending money more intentionally and increasing my savings rate. This blog is how the rest of the story played out.

I hope that my perspective on money helps to create positive change in how others interact with money. I also want to end the secrecy around debt and talk freely about the “bad” money decisions we make.