Barack Obama is a pretty classy dresser. But did you know that while he was in office the former U.S. President had a very simple approach to his wardrobe? He would wear a gray suit one day, and a blue one the next.

This is just one example of how he automated his day for maximum simplicity.  It turns out that you can use this approach to automate your financial life for the same benefit. And the new year is the perfect time to start.

Pay Yourself First

The single most important area to automate is your savings. Instead of hoping that there will be something left over at the end of the month, “pay yourself first”.

Set up an automatic transfer that moves money from your chequing account to your savings account (or TFSA or RRSP). Time it to take effect on whatever day you get paid. The amount you choose matters less than the habit change to prioritize saving over spending.

Over time, you can increase the automatic amount and also increase the number of areas you save for. You might start by saving for a down payment on a house, then add an automatic transfer for retirement savings, and maybe another one for vacations.

Remember: The most magical mathematical equation ever is called “Compound Interest”. If you put away $200 per month from age 25 to 80, you’ll have saved over $1 Million, because the growth is exponential. See? Magic.

I’m not hemped up on Ganji. I know this isn’t an easy change. If you find that you don’t have any wiggle room to pay yourself first, you need to work on your cash flow – increase your income, cut your expenses or perhaps do a little of both. But those who pay themselves first end up with a way more than those who just save what’s left over at the end of the month.

Crush Your Credit Card Debt

If you happen to be carrying credit card debt your automation approach will be a little different. You’ll direct your monthly automatic transfer to that villainous credit card until the balance falls to zero. Then, you can keep the momentum going by paying yourself first.

Remember the goal is zero credit card debt. The best guaranteed return on your money is to eliminate the 19%-29% interest you’re paying on your credit card by taking your outstanding balance to $0.00. So don’t stop at the minimum payment.  Automate to the max.

Autopay Fixed Expenses

The next area to automate is the payment of fixed expenses. You probably already do this with your rent or mortgage. Now add bills like heat, and water.

Some fixed expenses don’t come in every month, like property taxes or insurance. Take the annual or semi-annual bill and figure out what the monthly amount would be. Then set up an automatic transfer from your chequing account into a separate bank account so the money is hidden away waiting until you need it.

Keep Spending Painful

You don’t want to automate all of your bills. I want you to make saving as painless as possible. But keep spending painful. The bills that are discretionary, like your credit card and your cell phone, should be paid manually. Here’s why: I want you to go through every bill in detail, every month, to check for accuracy, but also so you are very clear on what you’re spending your money on.

The benefits of automation are huge: You’ll simplify your life, saving time and worrying less. And you’ll supercharge your savings, paying less in interest and earning more on your investments. And you’ll make Barack very, very proud.

Bruce Sellery

Author Bruce Sellery

Bruce Sellery is a personal finance expert, financial literacy consultant and author of two Globe & Mail bestsellers including, “Moolala: Why smart people do dumb things with money (and what you can do about it)”. He is the Money Columnist for CBC Radio, Cityline and MoneySense and was the host of Million Dollar Neighbourhood on the Oprah Winfrey Network. Bruce serves as the Executive Advisor on the Financial Literacy Program for Carrot Rewards and his consulting practice focuses on financial institutions, corporations and non-profits interested in improving financial well-being.

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