The Psychology of Automation: Building a Bulletproof Personal-Finance System

Actor facesToo many choices. Using automation to reduce choices and dominate your money.

I have known Ramit Sethi for several years now, first through PBWiki, which he co-founded, and later as someone I turned to with questions about the world and workings of finance. In a world of gurus who promote one method of investing and then follow another, it was refreshing to talk with someone who was willing to share real numbers and case studies from their experiments.

Ramit and I have also able to share a bottle (OK, many bottles) of wine and laugh about the downstream effects of titles we’ve tested and chosen, as both of our book titles sound like scams to most people: The 4-Hour Workweek and I Will Teach You To Be Rich.

Despite this self-imposed handicap, Ramit’s blog and advice have been featured in media such as NPR, The New York Times, and Fortune magazine. I specifically asked him if I could excerpt a few of the diagrams and call scripts from his new book. He and I both share a love of templates that enable us (and others) to duplicate results without reinventing the wheel…

Enter Ramit.

The Psychology of Automation – by Ramit Sethi

Think about the 50+ money decisions you have to make today: Should you save more? What should you cut down on? What about investing — real estate or stocks or index funds? Pay off debt? Did you send in that Comcast bill on time? Is it time to rebalance your portfolio?

Faced with an overwhelming number of choices, most people respond in the same way: They do nothing. As Barry Schwartz wrote in The Paradox of Choice: Why More is Less,

“…as the number of mutual funds in a 401(k) plan offered to employees goes up, the likelihood that they will choose a fund — any fund — goes down. For every 10 funds added to the array of options, the rate of participation drops 2 percent. And for those who do invest, added fund options increase the chances that employees will invest in ultraconservative money-market funds.”

Why do so many people believe that personal finance is only about willpower? The idea goes like this: “If I just try harder, I’ll start saving more, pay off my debt, stop spending all that money, keep a budget, learn about investing, start investing, rebalance ever year…” Unlikely. In fact, go ask your friends if they’re taking full advantage of their employer’s 401(k) match. The vast majority of people are not — even though it’s literally free money. Their answer? “Yeah…I really should do that…”

It’s not about willpower. More than anything else, the psychology of automation is critical to successfully getting control of your finances.

In one study, researchers found that making 401(k) accounts opt-out instead of opt-in — in other words, making employees automatically participate, although they could stop at any time — raised contribution rates from less than 40% to nearly 100%.

401k1Defaults matter. We’ve all read The Four Hour Workweek so you know about the benefits of doing less. Today, Tim’s given me the opportunity to show you the details of the personal-finance system I’ve built over the last five years. It’s a way to automate the day-to-day decisions you have to make — paying bills, investing, rebalancing, cutting down on spending, increasing spending on things you love — and focus on the things you care about.

Using “The Next $100” Principle, which I’ll show you below, your automated money flow will automatically route money where it needs to go — investments, paying bills, savings, and guilt-free spending.

And you can focus on the things that matter to you, instead of being a slave to your personal finances.

Case study: Michelle’s Automation System

To see how this will work, let’s use Michelle as an example:

automation-overviewMichelle gets paid once a month. Her employer deducts 5 percent of her pay automatically and puts it in her 401(k). The rest of Michelle’s paycheck goes to her checking account by direct deposit.

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. Her savings account will pull 5 percent, automatically breaking that money into chunks: 2 percent for a wedding sub-account, 2 percent to a house down-payment sub-account, and 1% for an upcoming vacation. (That takes care of her monthly savings goals.)

Her system also automatically pays her fixed costs like Netflix, cable, and insurance. She’s set it up so that most of her subscriptions and bills are paid by her credit card. Some of her bills can’t be put on credit cards—for example, utilities and loans—so they’re automatically paid out of her checking account. Finally, she’s automatically e-mailed a copy of her credit card bill for a monthly five-minute review. After she’s reviewed it, the bill is also paid from her checking account.

The money that remains in her account is used for guilt-free spending money.

To make sure she doesn’t overspend, she’s focused on two big wins: eating out and spending money on clothes.

She sets alerts in her Mint account if she goes over her spending goals, and she keeps a reserve of $500 in her checking account just in case. (The couple of times she went over her spending, she paid herself back using her “unexpected expenses” money from her sub-savings account.) To track spending more easily, she uses her credit card as much as possible to pay for all of her fun stuff. If she uses cash for cabs or coffee, she keeps the receipts and tries to enter them into Mint as often as possible.

In the middle of the month, Michelle’s calendar reminds her to check her Mint account 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 dine out she gets back on track.

By the end of the month, she’s spent less than two hours monitoring her finances, yet she’s invested 10 percent, saved 5 percent (in sub-buckets for her wedding and down payment), paid all of her bills on time, paid off her credit card in full, and spent exactly what she wanted to spend. She had to say “no” only once, and it was no big deal. In fact, none of it was.

Starting off: Scripts for negotiating with banks and credit cards

We’ll get to creating an automatic personal-finance system for you in a second. First, we need to iron out a few wrinkles to make sure your banks and credit cards aren’t screwing you.

The first steps are setting up the right financial accounts (saving, checking, investing), which I detail in chapters 1-3 of my book, but I’m just going to give you some core negotiation scripts to use against your financial institutions. With a customer-acquisition cost that’s typically between $300 and $1,500, financial companies don’t want to lose you — especially since most Americans are horrible negotiators and are afraid of using the phone. If you do it, you’re one of a select few who get preferential treatment.

First, I recommend you create a simple spreadsheet where you list all your accounts. Without it, you’ll activate a passive barrier that will make automation and negotiation far less likely to succeed. Download a spreadsheet here.

Next, I recommend you call up each account and negotiate like an Indian:

Script #1: Negotiating overdraft fees from your bank

You: “Hi, I just saw this bank charge for overdrafting and I’d like to have it waived.”

Bank rep: “I see that fee . . . hmm . . . Let me just see here. Unfortunately, sir, we’re not able to waive that fee. It was [some B.S. excuse about how it’s not waiveable].”

Bad Things to Say Here:

  • “Are you sure?” (Don’t make it easy for the rep to say no to your request.)
  • “Is there anything else I can do?” (Again, imagine if you were a customer-service rep and someone asked this. It would make your life easier to just say no. As a customer, don’t make it easy for companies to say no.)
  • “Well, this Indian blogger dude told me I could.” (Nobody cares. But it would be cool if a thousand customers called their banks and said this.
  • “Okay.” (Don’t give up here. Despite what you learned in sex ed, “no” does not mean “no” when it comes from a bank.)

Try this instead:

You: “Well, I see the fee here and I’d really like to get it waived. What else can you do to help me?”

(Repeat your complaint and ask them how to constructively fix it. At this point, about 85 percent of people will get their fees refunded. I have hundreds of comments from people on my blog who have taken this advice and saved thousands of dollars in fees. But in case the rep doesn’t budge, here’s what you can do.)

Bank rep: “I’m sorry, sir, we can’t refund that fee.”

You: “I understand it’s difficult, but take a look at my history. I’ve been a customer for more than three years, and I’d like to keep the relationship going. Now, I’d like to get this waived—it was a mistake and it won’t happen again. What can you do to help?”

You: “Hmm, one second, please. I see that you’re a really good customer. . . . I’m going to check with my supervisor. Can you hold for a second?”

(Being a long-term customer increases your value to them, which is one reason you want to pick a bank you can stick with for the long term. And the fact that you didn’t back down at the first “no” makes you different from 99 percent of other customers.)

Bank rep: “Sir, I was able to check with my supervisor and waive the fee. Is there anything else I can help you with today?”

Script #2: Negotiate your credit card APR

Your APR, or annual percentage rate, is the interest rate your credit card company charges you. The average APR is 14 percent, which makes it extremely expensive if you carry a balance on your card. Put another way, since you can make an average of about 8 percent in the stock market over the long term, your credit card is getting a great deal by lending you money.

So, call your credit card company and ask them to lower your APR. If they ask why, tell them you’ve been paying the full amount of your bill on time for the last few months, and you know there are a number of credit cards offering better rates than you’re currently getting. In my experience, this works about half the time. It’s important to note that your APR doesn’t technically matter if you’re paying your bills in full every month—you could have a 2 percent APR or 80 percent APR and it would be irrelevant, since you don’t pay interest if you pay your total bill in each month. But this is a quick and easy way to pick the low-hanging fruit with one phone call.


Script #3: Get your monthly/annual fees waived (credit cards and all bank accounts)

You: “Hi, I’d like to confirm that I’m not paying any fees on my credit card.”

Credit Card rep: “Well, it looks like you have an annual fee of $50. That’s actually one of our better rates.”

You: “I’d rather pay no fees. Which card can you switch me to that doesn’t charge fees? I’d like to make sure my credit score isn’t affected by closing this account, too. Can you confirm?”

The vast majority of people don’t need to pay any annual fees on their credit cards, and because free credit cards are so competitive now, you rarely need to pay for the privilege of using your card. The only exception is if you spend enough to justify the extra rewards a fee-charging account offers. If you do pay an annual fee, do a break-even analysis to see if it’s worth it. Hundreds of my readers have either (1) had their annual fee refunded, or (2) switched to a no-fee card.


Script #4: What to do if you miss a credit card payment

You: “Hi, I noticed I missed a payment, and I wanted to confirm that this won’t affect my credit score.”

Credit Card rep: “Let me check on that. No, the late fee will be applied, but it won’t affect your credit score.”

(If you pay within a few days of your missed bill, it usually won’t be reported to the credit agencies. Call them to be sure.)

You: “Thank you! I’m really happy to hear that. Now, about that fee…I understand I was late, but I’d like to have it waived.”

Credit Card rep: “Why?”

You: “It was a mistake and it won’t happen again, so I’d like to have the fee removed.”

(Always end your sentence with strength. Don’t say, “Can you remove this?” Say, “I’d like to have this removed.” At this point, you have a better-than-50-percent chance of getting the fee credited to your account. But just in case you get an especially tough rep, here’s what to say.)

Credit Card rep: “I’m very sorry, but we can’t refund that fee. I can try to get you our latest blah blah marketing pitch blah blah…”

You: “I’m sorry, but I’ve been a customer for four years and I’d hate for this one fee to drive me away from your service. What can you do to remove the late fee?”

Credit Card rep: “Hmm . . . Let me check on that. . . . Yes, I was able to remove the fee this time. It’s been credited to your account.”

You don’t believe me that it can be so simple? It is. Anyone can do it.

There are other advanced negotiating strategies and tactics, including optimizing your debt-to-credit ratio, but I’ll leave those for another day.

Finally, if you decide to switch accounts, which ones should you use? I cover this in detail in the book, but here’s what I use ING Direct for savings and Schwab Investor Checking, where I earn interest and get 100% of ATM fees refunded from anywhere.

    • *“The Next $100” Principle Applied: Automating your Finances

Too many people try to save money on 50 things and end up saving 5% on everything — and causing themselves a huge amount of stress that makes them give up entirely. Instead, I prefer focusing on my top two discretionary expenses (for me, eating out and going out), and cutting 25%-33% off over a period of six months. This generates hundreds of dollars of extra cash flow that I re-route to investing and travel.

To show you how automating your accounts works, I’ve prepared a 12-minute video that shows you how to build a personal-finance infrastructure that automates your money so you can spend less than 1 hour per week monitoring your money. Everything will be done automatically — investment, savings, bills paid. Everything.

Ramit’s 12-Minute Guide to Automating Your Finances

First, you’ll need to log in to each account and link your accounts together so you can set up automatic transfers from one account to another. When you log in to any of your accounts, you’ll usually find an option called something like “Link Accounts,” “Transfer,” or “Set Up Payments.”

These are the links you need to make:

account-flowsExamples: Your 401(k) should be connected to your checking account via direct deposit (talk to your HR rep about setting this up — it takes 10 minutes to fill out a form). Then log into your Roth IRA, savings account, and credit card, where you can link your checking account to them. Finally, there are some bills that can’t be paid through your checking account, like your rent. For those, use your checking account’s free bill-pay feature so they automatically issue your landlord a check on the precise date it’s due. Now, you never have to manually write a check again.

Set up automatic transfers

Now that all your accounts are linked, it’s time to go back into your accounts and automate all transfers and payments. This is really simple: It’s just a matter of working with each individual account’s website to make sure your payment or transfer is set up for the amount you want and on the date you want.

Most people neglect one thing when automating: dates. If you set automatic transfers at weird times, it will inevitably necessitate more work, which will make you resent and eventually ignore your personal-finance infrastructure. For example, if your credit card is due on the 1st of the month, but you don’t get paid until the 15th, how does that work? If you don’t synchronize all your bills, you’ll have to pay things at different times and that will require you to reconcile accounts. Which you won’t do.

The easiest way to avoid this is to get all your bills on the same schedule. To accomplish this, get all your bills together, call the companies, and ask them to switch your billing dates. Most of these will take five minutes each to do. There may be a couple of months of odd billing as your accounts adjust, but it will smooth itself out after that. If you’re paid on the 1st of the month, I suggest switching all your bills to arrive on or around that time, too.

Call and say this: “Hi, I’m currently being billed on the 17th of each month, and I’d like to change that to the 1st of the month. Do I need to do anything besides ask right here on the phone?” Of course, depending on your situation, you can request any billing date that will be easy for you.

Now that you’ve got everything coming at the beginning of the month, it’s time to actually go in and set up your transfers. Here’s how to arrange your Automatic Money Flow, assuming you get paid on the 1st of the month.

date-flows12nd of the month: Part of your paycheck is automatically sent to your 401(k). The remainder (your “take-home pay”) is direct-deposited into your checking account. Even though you’re paid on the 1st, the money may not show up in your account until the 2nd, so be sure to account for that.

Remember, you’re treating your checking account like your e-mail inbox— first, everything goes there, then it’s filtered away to the appropriate place. Note: The first time you set this up, leave a buffer amount of money—I recommend $500—in your checking account just in case a transfer doesn’t go right. And don’t worry: If something does go wrong, use the negotiation tips above to get any overdraft fees waived.

5th of the month: Automatic transfer to your savings account. Log in to your savings account and set up an automatic transfer from your checking account to your savings account on the 5th of every month. Waiting until the 5th of the month gives you some leeway. If, for some reason, your paycheck doesn’t show up on the 1st of the month, you’ll have four days to correct things or cancel that month’s automatic transfer.

Don’t just set up the transfer. Remember to set the amount, too. Use the percentage of your monthly income that you established for savings in your Conscious Spending Plan (from Chapter 4 of my book; typically 5 to 10 percent). But if you can’t afford that much right now, don’t worry—just set up an automatic transfer for $5 to prove to yourself that it works. The amount is important: $5 won’t be missed, but once you see how it’s all working together, it’s much easier to add to that amount.

5th of the month: Automatic transfer to your Roth IRA. To set this up, log in to your investment account and create an automatic transfer from your checking account to your investment account. Refer to your Conscious Spending Plan to calculate the amount of the transfer. It should be approximately 10 percent of your take-home pay, minus the amount you send to your 401(k).

7th of the month: Auto-pay for any monthly bills you have. Log in to any regular payments you have, like cable, utilities, car payments, or student loans, and set up automatic payments to occur on the 7th of each month. I prefer to pay my bills using my credit card, because I earn points, I get automatic consumer protection and little-known benefits, and I can easily track my spending on online sites like Mint, Quicken, or Wesabe.

But if your merchant doesn’t accept credit cards, they should let you pay the bill directly from your checking account, so set up an automatic payment from there if needed.

7th of the month: Automatic transfer to pay off your credit card. Log in to your credit card account and instruct it to draw money from your checking account and pay the credit card bill on the 7th of every month— in full. (Because your bill arrived on the 1st of the month, you’ll never incur late fees using this system.) If you have credit card debt and you can’t pay the bill in full, don’t worry. You can still set up an automatic payment; just make it for the monthly minimum or any other amount of your choice. (Incidentally, paying your bills on time is the one of the top factors in determining and improving your credit score.)

By the way, while you’re logged in to your credit card account, also set up an e-mail notification (this is typically under “Notifications” or “Bills”) to send you a monthly link to your bill, so you can review it before the money is automatically transferred out of your checking account. This is helpful in case your bill unexpectedly exceeds the amount available in your checking account—that way you can adjust the amount you pay that month.

Tweaking Your System: Freelancers, irregular income, and unexpected expenses

That’s the basic Automatic Money Flow schedule, but you may not be paid on a straight once-a-month schedule. That’s not a problem. You can just adjust the above system to match your payment schedule.

If you’re paid twice a month: I suggest replicating the above system on the 1st and the 15th—with half the money each time. This is easy enough, but the one thing to watch with this is paying your bills. If the second payment (on the 15th) will miss the due dates for any of your bills, be sure that you set it so that those bills are paid in full during the payment on the 1st. Another way to work your system is to do half the payments with one paycheck (retirement, fixed costs) and half the payments with the second paycheck (savings, guilt-free spending), but that can get clunky.

If you have irregular income: Irregular incomes, like those of freelancers,

are difficult to plan for. Some months you might earn close to nothing, others you’re flush with cash. This situation calls for some changes to your spending and savings. First—and this is different from the Conscious Spending Plan—you’ll need to figure out how much you need to survive on each month. This is the bare minimum: rent, utilities, food, loan payments—just the basics. Those are your bare-bones monthly necessities.

Now, back to the Conscious Spending Plan. Add a savings goal of three months of bare-bones income before you do any investing. For example, if you need at least $1,500/month to live on, you’ll need to have $4,500 in a savings buffer, which you can use to smooth out months where you don’t generate much income. The buffer should exist as a sub-account in your savings account. To fund it, use money from two places:

  1. Forget about investing while you’re setting up the buffer, and instead take any money you would have invested and send it to your savings account.
  2. In good months, any extra dollar you make should go into your buffer savings.

Here’s an example of how I set up my sub-savings accounts:

sub-accountsOnce you’ve saved up three months of money as a cushion, congratulations! Now go back to a normal Conscious Spending Plan where you send money to investing accounts. Because you’re self- employed, you probably don’t have access to a traditional 401(k), but you should look into a Solo 401(k) and SEP-IRA, which are great alternatives.

Just keep in mind that it’s probably wise to sock away a little more into your savings account in good months to make up for the less profitable ones.

If you have an irregular income, I highly recommend using YouNeedABudget as a planning tool. It uses a forward-looking system that’s very helpful if you don’t know what you’re going to make next month.

Your money is now automatic

Congratulations! Your money management is now on autopilot. Not only are your bills paid automatically and on time, but you’re actually saving and investing money each month. The beauty of this system is that it works without your involvement and it’s flexible enough to add or remove accounts any time. You’re accumulating money by default.

Most importantly, whenever you’re eating out, or you decide to buy a new pair of shoes or fly out to visit your friends or get the “Pro” version of that web app you’ve been eyeing, you won’t feel guilty because you’ll KNOW that your finances are being handled — automatically.

Excerpts from Ramit Sethi’s new book, I Will Teach You To Be Rich. Used with permission.

The Tim Ferriss Show is one of the most popular podcasts in the world with more than 900 million downloads. It has been selected for "Best of Apple Podcasts" three times, it is often the #1 interview podcast across all of Apple Podcasts, and it's been ranked #1 out of 400,000+ podcasts on many occasions. To listen to any of the past episodes for free, check out this page.

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170 Replies to “The Psychology of Automation: Building a Bulletproof Personal-Finance System”

  1. Ramit is awesome. I’ve been following his stuff for a few months now. But oh how I wish he had been around when I was in my early twenties!!! How much further I would be along now. But it’s never too late.



  2. Brilliant post. Already have the book on my Amazon shopping list and will get it with my next order (still have a few books to get through first).

    Glad I’m starting with all this at my age. 🙂

  3. I think it’s absolutely amazing how many of us still pay bills one at a time. I’m one of them and it’s an unproductive system that eats away at my valuable time.

    Thanks for laying out the process in such detail. This is something I’ve wanted to do for a while now, but haven’t set aside the time or had a kind of guide like this to hold my hand. Not that its brain surgery or anything, but this was very helpful. Much appreciated, Eric.

  4. If you dig 4HWW stuff, you’ll dig Ramit’s book. I was lucky enough to read it earlier this month and digest it, and it was a very wise decision. Who cares about a contest? Just buy it and win big.

  5. Hopefully the next go round on this presentation will include mention of charitable giving in an automated budget.

  6. Great timing as I just got word from our CPA on how much we’ll have to pay out for our 2008 taxes.

    Tim or Ramit- any specific ideas/strategies on reducing how much we need to pay in taxes?



  7. When we bought our new house a few years ago, I was able to negotiate several thousands of dollars off the regular price of our built-in appliances. The supplier let me put the down payment on a credit card. When the time came for delivery sooner than expected, I only had about 75% of the money. I knew I would get the balance a week after my credit card statement was due. They let me put the balance on my credit card. Before I did that, I checked with the credit card company to see if I could paid the 75% on the statement date and then a week later pay off the balance and only pay interest on the 25% balance for the one week period beyond the statement date. No problem they said – the interest would be about $30. So I went ahead with the supplier.

    The next month’s statement came and the interest charge was over $400. So I called the CC company. At first, they said the policy was that if the account wasn’t paid in full. The full amount would accrue interest from the date the charge appeared on the statement. But I mentioned that I checked before I charged the full amount and the interest would only be about $30. I was put on hold for about 5 minutes and when they came back, they said the interest would be credited. When the statement came, the full amount of interest was credited to my account. I pays to be persistent, but it also pays to be pro active.

  8. Great post! I have been automating my finances for 2 years now and it is so much easier. I have everything from my car, credit cards, and cell phone on auto pay. The best thing about the credit card on auto pay is that you never get a late fee because it always takes the miniumum payment out of your checking account. I usually pay my cards off, but I think of the auto pay as insurance. Late payments are not good for your credit score. It is hard to keep track of all those bills when you travel all the time. If you have multiple houses you can keep track of your payments on each by creating seperates accounts for each for utility bills, ect. that way if you need to check back on an expense you just have to pick up the statement. I also have the keep the change program on my debit card which rounds up the balance of each debit transaction on auto pay and puts it into savings (I earn airline miles on both my debit and credit cards).

    1. It is also not an easy task to comment on someone’s post because we have to write comments thoughtfully, you have commented very well, as good as the post is great, your comment is also praiseworthy and simple.

  9. This is Ramit (the author of the guest post).

    Adam and David, thanks!

    Coop, the simplest and most effective way to reduce taxes is to max out your retirement accounts, whether it’s your 401(k), Roth IRA, or other tax-advantaged accounts. That’s the 85% Solution — it gets you 85% of the way there and you can get on with your life. Beyond that, I much prefer to focus on earning more and fine-tuning my infrastructure than micro-optimizing taxes.

  10. Great advice. Setting aside money automatically has helped me reduce my debt, build savings, and have spending money without spending a huge amount of time.

  11. Coop- on taxes… If you have a business pay your self a smaller salary then at the end of the year take a dividend. Ex. you pay yourself $50,000 salary per year to cover living expenses then at the end of the year take a large dividend such as $25,000. You do not have to pay employment tax, social security (which you may never see anyway), workmans comp, or withholdings. The tax rate on long term capitol gains is much lower than income tax. If do not have your own business get a good tax guy and take advantage of every tax write off you can. Real estate is one of the best write offs because the intial payments are mostly interest, so you get to write off your mortgage payments at the end of the year. Now with the prices coming down and interest rates low, it is not such a bad deal. If you pay local income tax, do some research on taxes in other areas, some areas have a decent sales tax rate and no state income tax. The same goes for business… look up Nevada Corporation.

  12. I enjoy reading both you and Ramit. I got a copy of your book – The 4 hour Workweek – for Christmas and I’m on my second read. I’m one of those irregular income types. Some of your tips apply to U.S. residents only. In Canada, we have RSP accounts – somewhat like the 401K U.S. plans – as a retirement account that allows tax deductions from income for contributions. We now a Tax Free Savings Account, which allows us to take after tax dollars and place it in the TFSA and not pay taxes on any income from that account.

    I have used one of your tools to figure my monthly cash requirement. Generally any excess cash is invested in my stock market cash account. If I don’t have the cash for that month, I sell off some of my investments. Over the last year, this has not been one of my most prudent moves. In boom times, this worked quite well and I made good returns. Such is life in the ups and down of the market.

    Even though I’m in my 60s, I find your approaches to be worthwhile to explore. The market sure won’t help me survive if I retire.

  13. Oh goody, I was lamenting not getting in on the prize giveaways Ramit was doing the other day, but I like these prizes better 🙂

  14. I bought Ramit’s book and have been taking some of the steps suggested towards automation.

    If no money is saved over what I was already saving I will still be happy with the decision to follow Ramit’s suggestions. The reason is that when you automate you allow yourself to achieve a peace of mind that will lead to increased productivity and confidence in your financial situation that manually transferring savings just will not allow.

    Great post Tim.



  15. Ramit — I am just arrived home from work to find your book on my doorstep. I am excited to dive in! If your blog had nutritional facts… it would be packed with Protien. Take care.

    Tim — Thanks for sharing your brilliant friends with us!

  16. Good advice and it works. Have always had luck getting a few late fees waived over the years. How do you get the bank to fix a screw up (theirs), once it’s been reported to the credit bureaus?

  17. Great advice. This should help free up time so I can focus on other things. I like the idea of using the Credit Card (must pay respect to those words) for normal monthly expenses that allow it. My wife and I want to travel when the kids get a little older and this would be a great way to rack up some mileage points.

    Any tips for impulsive spenders that have a bad history with abusing credit cards?


  18. Ramit,

    I noticed you had a “Fuel Hedge” savings account in your ING… Can you explain what you’re doing here, or provide a link if you have already done so on your own site?

    I understand how Fuel Hedging works when airlines do it, but not at a personal level…

  19. Great stuff. I am already a big fan of and I appreciate all of the additional tips as well.

  20. Ramit here again.

    MJ asked about impulsive spending with credit cards. There are lots of techniques, but one of the simple ones you can start today is to set up an automatic payment for something small on your credit card (this will help maintain your credit) and then try cash-only. Another tactic is to use Mint to alert you when you’re going over your spending. Make sure to do this every 10-15 days so you can stay on track. Once a month is not enough.

    Ryan, I use fuel hedging to save money when the price of gas is low. See more about fuel hedging.

    I love all these comments because you guys are totally into building systems, so this is a great way to apply infrastructure/systems thinking into something that affects you every day!

  21. I think putting the first three chapters online pre-release was brilliant. I’d hesitated buying Ramit’s book because despite having some great resources, many of them do not apply to Canadians. Services like Mint sound great, but they do not work outside of the US.

    After reading the chapters available online, I saw I could wade through the American terminology and get past it to find value in other aspects of the book.

    Much appreciated!

  22. Great stuff. I am already a big fan of and I appreciate all of the additional tips as well.

    Sorry… forgot to say great post – can’t wait to read your next one!

  23. Excellent post.

    I think I have half of it set up already, will update my automation further. Thanks!

    I love the guilt free spending ‘trick’, very useful.

  24. Hi Ramit,

    Good stuff.

    Like how you use the online tools to manage everything. I haven’t read any other personal finance writer who thinks along these lines. I just use a spreadsheet but I’m very impressed with

    Also agree that its a good idea to set up a buffer for emergencies before doing any investing – my inclination would be for it to cover six months to a years worth of expenses but I’m very conservative.

    I’m a bit of a personal finance book junkie, will definitely read yours when its available in Australia.


  25. I started following this concept a year and a half ago. It most definitely works. The psychological boost is wonderful. No more worrying about “Hey, did I pay the electric bill this month?”

    One item I didn’t see mentioned was that many companies will actually offer you a reduction in your percentage if you sign up for automatic payments. Between my mortgage and my student loan, I was able to save around $150/month just by switching over.

  26. “It’s not about willpower.”

    I totally disagree with this statement, having followed Dave Ramsey’s method for about four years. I understand about automating your finances, but first you have to sit down each pay period and map out where the money is going so one can see where the problems are. Credit cards and crap will show up every week. Eventually the light comes on, and you start asking yourself, “Do I really need this (fill in the blank)?” Until that time, I suggest one starts with the paper or spreadsheet method and tell your money where it will go before each pay period. This article is a great tool, but you must master the basics first. Budgeting is about willpower.

  27. Hey Tim,

    Your offer at the bottom of the post probably wants to say something like “a chance at the grand prize”. Right now it looks like you and Ramit are inviting every book buyer to dinner!


    If you make lots of money, maximizing your 401k, etc, isn’t going to get you 85% of the way there on reducing your taxes. I work with financial advisors, and there are ways to put away literally hundreds of thousands of dollars every year, into investments that you control. Typical retirement accounts just don’t allow that.

    But for most people, typical retirement accounts do provide the quickest tax savings. Especially focus on Roth accounts, whether IRA or 401k, if you should be so fortunate to have the latter (although you can set up your own if your employer does not offer one and you have other income — feel free to contact me, anyone, if you want to know about it. I don’t offer it but can point you in the right direction.)

  28. Very practical advice. What I’m going to try and implement is paying bills all in one day. I think people underestimate how much paying bills 3 or 4 times a month can be like “working for works sake” (BOOM. An angel just got it’s wings.)

  29. I use and I love it. I combine it with another website: which makes for a very powerful combination.

    Paytrust allows me to have all my paper bills sent to one location. Then, I can view my bills online much the same way Earth Class Mail puts my mail online. I have created rules for paying my payees. For instance, I have created a rule for Time Warner Cable. The rule is as follows:

    If the bill is $90 or less, pay the bill. Otherwise, email me to let me know that the bill was higher than expected, and I need to take action for the bill to be paid.

    I started using Paytrust when I was in the Marines and I haven’t personally paid a bill for over 6 years. The key to any automated system is effective controls, and paytrust allows me to do that.

    Hope everyone is well!!


  30. I have found that using a debit card instead of credit cards has lowered my and my wife’s spending also. We never really worried about spending on credit cards, and would frequently go over what we had planned to spend. But using a debit card and cash keeps us much more conscious of what we are spending.

    I made this change after reading about a Dunn and Bradstreet study; it found that on average you will spend 12-18% more when making a purchase with a credit card as opposed to cash. We have found it to be true!

  31. Hey Tim,

    Great post as always. I’ve been using for a while and it has been amazing to keep track of my spending. Now I just need to get my wife to follow the budget 😀 I also have a single ING Orange Savings account and will be looking in to having the sub-accounts for individual expenses.

    Anyways, I want to applaud whoever came up with the marketing plan of the contest. I just sent my receipt in and will be looking forward to reading Ramit’s book. Any chance of writing a case study post on how many sales the competition resulted in?



  32. Done. Looking forward to reading the book. Ramit’s blog is great. I have learned a lot and will pass on many of his teachings to my subscribers.

  33. This is a really great post and plan. I love the automation of the savings – once the money is allocated you just “set it and forget it.” I will be buying the book.

  34. I appreciate this post and what it offers in benefits with automation. However, I think the willy-nilly launch into putting your personal finance management into auto-pilot is foolish. Time and again, not paying attention to what’s going on with your money and being involved in the conscious decision of where it goes is the number one reason people lose their financial assets. Just ask anyone who was a client of Bernie Madoff.

    Additionally, the age of electronics, internet and consolidated information social sites like Mint add an additional danger. One they breed laziness as I noted above, but second and more important they actually increase the risk of fraud. Would you trust any financial advisor or lawyer with all your personal bank accounts and passwords to every asset so with one flip of a switch they have access to all your critical information? I suspect 99% of folks would say no. Yet that is exactly what people are doing with services like Mint.

    Maybe I subscribe to an old-fashioned Minute Maid view of finances, but I prefer to keep those decisions and info in my own head and files, thank you. And conscious management of my own finances has done far more in at least my own example and portfolio than any auto-saver did for me in life.

  35. this process is easy to understand, process and implement, but it is incredible to see how many people let inertia hold them back and they procrastinate the hell out of doing anything…working at a bank I witness this every single day…sad but true

  36. Two points.

    1) Ramit, big kudos to you and your publisher for the Kindle version. I bought Neil Strauss’ book after reading about it here, but had to buy it on PAPER! How 20th Century! I’m thinking of buying the kindle version of 4HWW (I bought the dead tree version the day it was released.) just to always have with me on my iPhone, alongside your book and Leo’s “Power of Less”.

    2) To those who complain, Yes, he talks about automation, but nowhere does he ever say “And then ignore it”. He even mentions getting your due dates aligned so you DON’T “resent and eventually ignore your personal-finance infrastructure”.

    When 4HWW was first launched some of the first responses were about it promoting that people become unproductive and lazy, and that people should send their responsibilities overseas so they could sit on their lazy american asses and watch Dancing with the Felons.

    Nothing could be farther from the truth about 4HWW, and based on what I’ve read so far Ramit’s book defies the negative comments I see here.

    This is a small piece of a much larger pie. It’s about manipulating your money intelligently and with minimum stress. It’s about doing things and understanding not only where your money is, where it is going and where it is coming from, but also how it works. I’ve read Ramit’s blog for some time and at no point does he preach anything that would recommend a hands-off, ignore-it style of money management. Quite the opposite, in fact.

    Just as Tim works less and DOES more than any seven of us put together (OK, a hundred and seven), Ramit, at least in my interpretation, uses those same sort of concepts and has his MONEY do more with less.

    Anyone think Tim has no idea what his income streams are doing, or that he’s – As Tom Lutzenberger put it above – putting their “management into auto-pilot”? Neither do I.

    Tim and Ramit have both created SYSTEMS that they use to minimize their direct involvement in the operation of their work/money, but neither have given up control.

    Or, at least, that’s how I see it.

  37. Great post. Personal finance is the one area I’ve never taken the time to simplify and automate, and I’ve wasted way too much time doing everything manually. I’m looking forward to getting my copy in the mail, and I’ll definitely be getting copies for my sisters if it’s as good as this post.

  38. Great post. I’ve been automated for a couple of years now and it’s amazing.

    I’m a little concerned about needing so much personal information…security questions answers, etc. Can anyone speak to this?

    Peace to all.

  39. Great Article.

    My only thing I would like to add is that I tried several times over the years to synchronize when my bills come (I get paid twice a month and wanted some to come the 2nd half instead of blowing all my bill money in the first half of the month). Some utilities were OK with this, but some weren’t, and the credit card companies wouldn’t play ball at all. It wouldn’t matter anyway since they now do 25-day billing perionds and the due date keeps moving. I have had trouble finding any (worthwhile) that have 30-day billing periods.

    This is why I dont automate with dates. If anyone has more tricks about this let me know.

    1. I hear you…

      The best workaround is to just keep a “float” in your checking account that’s equivalent to one month’s worth of bills. That functions as the minimum balance that the account should never drop below of. That way, regardless of what dates you set, expenses and savings/investments feed off any income that arrives on top of the float.

  40. Thanks Tim (and Ramit)! I already do some automation in my personal finances ever since my bank started offering a web billpay function but not to the level of detail and deliberate direction like described here. I picked up the book today and look forward to implementing some Ramit’s ideas in my financial life. Thanks again!


  41. shucks, i’m 3 hours late! already bought the book though, just waiting for it to arrive. looks like a great read. thanks!

  42. Ramit, how do you feel about the use of debit cards? I know people that have strong opinions both ways…

    Thanks for the penetrating advice. This is a helpful post (kudos to Tim for outsourcing it!!)

  43. Great post. Can’t wait to read the book in full.

    Does anyone know of any sites like mint, wesabe, or quicken that work in Canada?


  44. Thanks for the post. This is will help me greatly. I especially like the part about finding out what your biggest spending habits are and like Ramit mine are eating and going out. Just getting those two in check will do great wonders for my bank account and my body. The only thing I am unsure about is having all my money go into a strictly online bank account. There is still value in having the option to actually going inside a bank and get personal assistance..but I will look into it……..

    Any way I look fwd to getting the book…..

    I will start building my emergency fund immediately

  45. I love the idea and want to get started, but my bank is not recognized on mint, wesabe, or quicken. Any suggestions on what to do instead? I asked for it to be added weeks ago, and nothing has happened.

  46. Tim, as always, appreciate the efforts to bring “new blood” to your approach to lifestyle design (or redesign for some of us). Personal finance automation is brilliant – especially for us twenty-somethings out here.



  47. Tim/Ramit

    Do you feel 4HWW is quite ‘pre-Crunch’ (sorry, haven’t read Ramit’s book)?

    Is it still possible to rely so much on credit cards for business automation?

    I’m implementing a lot of the principles you’ve discussed – dreamlines, workouts, breakfast! – but I’d love to see less credit-reliant 4HWW strategies adapted to the credit crunch.


  48. There’s been a bit of talk about reducing taxes. For anyone who is self employed, up to $49,000 per year can be contributed to a Solo 401k – and it’s tax deductible. If you have a spouse double that figure.

    A $98,000 tax deduction that goes into a retirement account that grows tax deferred… that’s the most powerful tax strategy I’ve ever run into. 😀

  49. Hello Ramit & Tim –

    Thanks for the great post – I started using automatic bill pay over ten yeas ago (I believe it was to make my car payment) and ever since then have added all of my bills, mortgage, utilities, etc., including an automatic payment to the charity Mercy Corp each month. It really is a great way to simplify bill paying and ensure no late payments, extra fees or botched credit rating.

    I just have one question – where/how will we be receiving the invitation to the Webcast? I purchased the book during the required time period, forwarded the receipt, received confirmation from Ramit and an invitation to sign up for his newsletter, but have not received anything regarding the webcast.

    Hopefully it is still in the works – I certainly don’t want to miss it!



    1. @Victoria,

      Thanks for the comment! I just dropped Ramit a note and he’ll be in touch in the comments soon with answers.



  50. Hey all, it’s Ramit here. I’ll be sending out a note about the webcasts in the next 48 hours via email. Stay tuned!

  51. Great advice, I’ll be telling some finance-stressed friends about this one for sure. I am, of course, looking forward to the full version, but this helps a great deal (especially since my experience is minimal). Thank you.

  52. I’m purchasing the book on Amazon as we speak. I’m having it delivered to my SE Asia location. I doubt the book will be here that soon. Thanks for the tip given to freelancers. I’ll have to come back here and refer to that.

  53. It seems the ‘saving’ that Ramit appears to talk about is actually deferred spending.

    Putting money aside for weddings & vacations is simply delayed consumption, NOT saving.

    My philosophy is that true savings are NEVER to be touched. I started my ‘legacy fund’ when I realised that a growing, liquid cash reserve did wonders for my self worth, while also curbing emotional stress and volatility.

    I would say that over time, this one strategy has had the biggest influence in my ability to live a global lifestyle, free from the traditional 9-5.

    I would be curious as to whether you have a perspective on this.

  54. A word of caution: I happened to be speaking with an ING representative this morning about an unrelated matter, and inquired about automatically transferring a percentage of my funds from a primary Orange Savings account down to my Orange Savings sub-accounts. He told me that I needed to be very careful, because if one exceeds 5 transfers in a month for 3 consecutive months, the account would automatically be closed. He said that this was not simply ING policy, but a little known “savings regulation” applying to money market accounts (which is what Orange Savings accounts are considered).

    The ING rep’s solution (and what I think Ramit is suggesting) is to automatically transfer from your primary checking account to each savings account (or sub-account) directly. The same transfer regulation does not apply to a primary checking account, although fees may. To avoid paying any possible fees, the ING rep suggested scheduling the deposits from checking to each of your savings accounts through ING.

  55. Hi all, it’s Ramit again. If you submitted an email before the deadline, you should have just gotten a reply email with details on attending the webcast with Tim and me. Thanks!

  56. Hello Tim & Ramit –

    Just wanted to say Thank You again for a GREAT webcast tonight. I hope there will be others to come in the future.

    I have been enjoying both the 4HWW and IWTYTBR… I keep talking about taking my portable job on the road and seeing more of the world as I work remotely… My husband must be getting worried that I might actually do this, as he has finally gotten his own copy of the 4HWW. :O)

    Cheers –


  57. Thanks Tim and Ramit for all the info last night. I really like that format. It would be great if you guys did more of it.

    Good Luck,


  58. Over the years, I have used similar strategies, but now I have more comprehensive information to dive right in. Thank you.

  59. Hey Tim,

    I really enjoyed the webcast with Ramit last night. Good stuff to think about. There was one point that I would love to get you insight on. To me it seemed that Ramit poo-pooed the idea of actively pursuing passive income. That seems at odds with 4hww. What’s your take on that?

    Thanks for any response.

  60. Hi Darryl,

    I think Ramit was emphasizing that the phrase “passive income” is often associated with questionable biz opp programs, which is true, but the concept and rationale is sound. Hopefully my answer to the reader's question pointed out some of my thoughts from the tactical side.

    Thanks for joining us!


  61. nice post! i’ve been doing similar things (automatic investments and the like), but have been hesitant to take everything out of my salary account and split it up. this post has been the tipping point, and hopefully, there will be no turning back. kudos!

  62. Thanks Tim & Ramit –

    Thanks for the inspiring 4HWW content and the mint tip. I love mint, but active investor-traders might have questions about the privacy of linking mint with their brokerage account.



  63. The program is amazing. It makes managing all the accounts for banks, stocks, real estate easy and fast. thanks for the contact

  64. You might not have to get bills moved to pay them all at once. It's worth giving yourself a little extra liquidity, a little more money in the checking account, so that you can pay bills when it's easy for you to do rather than having to wait for your paycheck to come in. If you pay a bill three weeks before it's due, theoretically you're giving up three weeks of interest, but in practice that's probably less than a dollar and not that important compared to the time you save and the control you gain by paying things according to your own schedule.

  65. Another great post! Saw you needed some comments on twitter, so i came over. Who knew people wrote more than 140characters at a time anymore.

  66. Automation has been my objective for quite some time, and it’s paid off substantially. However, something that would really help is the ability to setup automatic transfers by percentage rather than dollar amount. As a freelance developer, my income is erratic and varies substantially by project.

    Do any of you know of a banking institution that has this capability? I want to apply it to ALL deposits made (i.e., 20% to ING, 20% to linked savings) you get the idea.

  67. Hi – I just picked up THE book and it was not hard to buy because I am THE guy with the 60 hour a week job that I detest; kids; mortgage; an economic crisis and age that means I lose my job it’s gone forever etc etc. So you see I have a boot full of “excuses” not to make the leap. I have only just started to read the book but I guess as a sort of safety blanket it would be nice to hear from people in exactly the same circumstances who did make the leap and what their experiences have been like. Don’t mind if teh onlt feedback I get is – Read the rest of the gd book !!!

  68. Hey Ramit (or anyone else) I was discussing this automation plan with my aunt this past weekend and she asked me why not put 10% of paycheck into 401k since its pretax, instead of 5% 401k and 5% of taxed income into Roth IRA? Does the 5 and 5 plan assume that 5 is the max contribution your employer will match? If so, why not contribute an extra 5% through a supplemental plan? I scanned the previous comments to look for this topic but in case I missed it sorry if this question is already answered. Thanks in advance,

    Rob Dewey

  69. This guest post pushed me over the edge, and I just ordered Ramit’s book from I’ve been busy the past few months in making my account management more hands free, and thinking along the lines of this video already, I’m glad to see I’m on the right track… I make a few different choices here, but the idea is the same.

    I’m paid bi-monthly, and all of my bills come at the beginning of the month already, so when I get my mid-month paycheck, I usually have enough money in my checking account to push whatever the balance was before pay day (15th) into savings. This is usually something like half my month’s pay. I’m running a bit of a hybrid where I pay things from two bank accounts at the moment. My main bank is Wachovia, but I’m switching over to ING fully as I gain confidence in their abilities.

    I just set up my monthly car payment (I pay over by about $80, and may end up increasing that amount to put it on the fast track) completely within ING, and it’s good to know that it will happen automatically from now on.

  70. An excellent post. I called my CC company about 2 late payment fees. At first the rep said it was policy to only waive one. I persisted and seconds later she had waived both fees. Thanks Ramit! Now I must buy your book.

  71. Hello,

    I hope this finds you well. I have read the 4HWW and was searching for guidance to indentify a business model. I have a few ideas however unsure if I am on the right course. If anyone has feedback how they initially identified their model and/or how they determined what business to venture into, it would be greatly appreciated Thank you for your time.

  72. Excellent post, lots to digest and I will certainly need to re-read a few times. But, some great personal finance strategies here!

  73. Ramit, awesome. Can we expect a book from you soon with specific reference to India? Because, as you know, 401(k) and other such things are not relevant here. While your book is so resourceful we would love to an Indian edition of the same.

  74. I’ve been reading the advice on tax savings…and I have a few comments:

    1. Contributions to a ROTH IRA are non-deductable – won’t help lower the bottom line come April ONE-FIVE.

    2. Student Loan and Mortgage Interest are deductable – it’s good to keep both, but look at the ammortization schedule, you may want to pay them off early – scary stuff.

    3. Work with a CPA, not an accountant, not jackson-hewitt, not H&R Block, a Certified Public Accountant – aicpa dot org to look for one in your area.

    4. Some alternative investments (asset classes other than stocks and bonds) offer additional deductibility – but beware of illiquidity and net worth/income minimum requirements.

    Great read Gentlemen, the precise reason I’ve read Tim’s book 4 times. I’m a Wealth Advisor and will steal a few of your ideas for myself.

  75. at Rob on the 5% and 5% vs. 10% question –

    While a 10% contribution will increase your 401(k) balance and subsequently decrease your tax liability, you’ll want to contribute the max to a 401(k) that your employer will match. If it’s say 50% up to 3%, you’ll want to contribute 6% to achieve the max 3% match – make sense? The additional amount should go to the Roth (assuming you are below the income limit) for the purpose of creating separate buckets of money to be accessed at various points in your life.


    Age 30, single, income of $70,000 – tax bracket 25% – use non-qualified (taxable) savings

    Age 60, married, retired – use Roth IRA for income before touching Traditional IRA – Roth IRA distributions tax free. must pay ordinary income taxes on Traditional IRA.

    If one doesn’t take full advantage of a Roth IRA while eligible (generally during the younger years of one’s earning life because of lower income and assuming as you age, you earn more hopefully), they lose this valuable “bucket of money” that will save thousands in taxes when they will most likely need the savings – during retirement.

    So, 5% to the 401(k) for the match in Ramit’s example and 5% to the Roth IRA.

  76. Hey Ramit,

    Automation is the most effective way to work.

    Do the work only once. Put in the one-time effort to build a system that’ll do the work for you from here on out.

    You free up your most valuable resources–time and energy–to spend on what’s important to you. Which is highly unlikely to be paying bills, managing personal finance, website maintenance, and so forth.

    Maximize your living by automating unnecessary work. Do the work once, free up resources, and go live.

    Thank you for your insanely useful book. Your 6-week program was exactly what I needed to build and automate my personal finance system,