Don’t Let Your Money Control You
Master your personal finance with online banking automation, so you can save more with less effort
I was reading an article posted on the FourHoursPerWeek’s blog about a system to better manage your money, and it made sense to me.
Apparently is a system founded by Ramit Sheti to help people save more with less effort by using automation.
Most personal finance blogs are written by American for American people, leaving out the remaining 7 Billion people on hearth. Not literally, considering 2 billion people are without a bank account.
I have used this system for years and save me lot of time and headaches.
Automation is always a good things because:
- more things get done with less effort
- minimize errors
- you can spend the time to do other things
This article will benefit expatriates that often work abroad or have bank accounts in multiple countries to take advantage of currency diversification and investment opportunity.
Let’s have a look to the original automating money system for US people.
The main benefit of this automatic system is to put the money away from your easy reach as soon as the paycheck come in.
For the non US people, an 401(k) and Roth IRA is an investment plan for employee in the US with tax benefit. It is a good tool to save money and grow your wealth.
However, I’m not the right person to explain or talk about it, if you are a US person and want to learn how to save money in IRA and 4012(k), NerdWallet.com have wrote some useful guide about it.
The diagram above is great, giving a clear and easy understating about how you can benefit from an automatic money system, but the financial percentages in savings and investments, don’t offer justice to people looking to retire early.
Saving only 10% of the total paycheck will hardly let you to retire comfortably at the age of 70. Do you want to work for so long?
I recommend to save at least 30% of your income. You might think it is hard but it isn’t, I used to save constantly above 80% of my income with a normal job as a chef.
I’m not alone, the couple at frugalwoods.com has an average saving rate of 71%, and there are many more out there.
Automation money System For International People
Let’s have a look how I have organized my accounts to offer growth for my money but also protection by diversification in different investment class and currency.
It might look a bit complicate, but once you are set with it, you will enjoy an automatic and reliable money management system to grow your wealth for years to come.
Let’s take a look to the money flow
If you are an employee, you get every month a money check and will be cashed in a checking account.
Usually, companies pay exactly on the same day every month, so all your transfer can be set and forget for the next business day.
For example, you get US$ 10.000 every 15th of the month into your personal account.
I presume you have got online banking, if not visit your branch and apply, it is easy and will take no longer than 10 minutes.
1) Set up automatic transfer to the saving account
Log in your online account and on the service menu search for own account transfer.
Set it up to transfer US$ 300 (3%) of your salary every 16th of each month from your checking account to your saving account.
NOTE: make sure you don’t have a ATM card or an easy way to access your saving account, you might be attempted to spend your saving and jeopardize the purpose of this system.
2) Set up automatic transfer to the local market stock (brokerage account)
Not everyone has one, and not everyone required a brokerage account especially if they aren’t knowledgeable in investing in the market stock directly.
If you don’t have a brokerage account, redirect the money to the ETF account instead.
Not every bank allow you to set it up an automatic transfer for this account, so you might do it manually. Send every month US$ 1.000 (10%) by standard instruction or manually.
3) Set up automatic transfer for ETF account
Follow the same instruction as above.
ETF are exchange trade fund that track an index. They are popular because of the low cost (0.05 – 0.80%) excellent for smart passive investors looking to accumulate wealth over a period of 10-30 years.
Index funds track the overall broad market, which means they’re designed to create results that are as good as overall economy- no worst, no better.
Historically, you will get a yearly return between 7-11% per year if you pour in money in monthly basis over a period of time.
You will notice, I have diversify my ETF account with 3 index:
- 40% Emerging Markets ETF
- 30% FTSE Europe ETF
- 30% S&P 500 ETF
I diversify to migrate some up and down of the global market, to keep a constant growing account.
In case one of the three ETF goes into a correction, the other 2 will keep moving up reducing the lost of the whole account.
It is more a physiologic factor than a real return benefit because over the time, all the sectors will go up anyway.
The are many ETFs, most probably your bank manage few ETFs but I recommend Vanguard, being the cheapest ETF out there.
In the long run cost eat your profit, so the lowest, the better.
Make sure to speak with your bank about transfers to ETF accounts, they should be free so you can keep your cost low.
NOTE: One more thing, ETF look similar like a Mutual Funds, but they are very different. A mutual fund is manage by a fund manager that “try” to beat the main index.
Unfortunately, data have shown that the majority of fund managers under perform the market, however, they still expect an heavy fee in commission that range between 1-4% per year.
Is it a joke?
No it isn’t.
ETF just track the main index buying in hundreds of companies by spreading the risks so they will not unperformed the general economy..
This is how people get richer automatically, sound investments with a long term horizon at the lowest cost possible = MONEY & MORE MONEY
You will be amazed at how fast your money will grow in this account over the year.
This is the reason I have allocated the most of my saving in this account, US$ 3.700 (37%) in the case of this example.
If you don’t feel comfortable in managing stocks and currency, save all your money in ETF account and let the magic happen.
4) Set up automatic transfer to a multi currency account
This is a bit more tricky and it aims to the advance investor or expatriate. It might not be suitable to the average person because it is a bit more complex to set up, transfer fee can be high and required from your side decisions to hold currencies.
However, for people living, working or investing in Singapore, Hong Kong or working worldwide, it is a must because you can make excellent gain at low risk just by protecting your savings.
The best institutions to open an account are:
Over the years by traveling and working in three different continents, I notice my net worth and salary in constant fluctuation, and the larger it got and the more up and down. This is the result of currency exchange rates.
Let me explain.
While working in Malaysia between 2009 and 2011, I was receiving my salary in local currency (Malaysian ringgit).
The beginning of the first year, my salary was around US$ 4.000 (14.500 Ringgit), by the end of the second year my salary was US$ 4.700 (14.500 Ringgit).
You will have notice, that my salary in Ringgit is been the same all the way, but in US dollars the value increased 15%. Not only that, all my saving in Ringgit had a similar appreciation if exchange in US dollars.
During this time as expatriate, I learn the importance to have a multi-currency bank account and the massive impact on my wealth.
This article about pros and cons of multi-currency bank account is very useful and will offer you a good overview.
The popularity of these account types has increased in recent years, not only because many more of us have become aware of the damage extremes of currency movement can have, but because there has been an increase in awareness of how much it can cost to exchange and move money between currencies.
If I would kept all my money in a currency like the US dollar after Bernanke started the infamous QE, I would have lost 17% of my NET worth during the next two years.
Whenever you hear that a country want to print more money, just run away. Another easy indicator is interest rates, if they go up, the currency strengthen and vice-versa.
I started to investigate and track data of the 10 major currency for the last 5 years, and I notice the wild swings between currencies and thought ” I can benefit from this with minimal risks”.
A strange pattern occur, and I found a system to safely predict which currency would outperform the others. Every year, I re balance my currency portfolio forward more favorable currencies keeping my savings in a strong position.
This year, I’m moving away from the US dollar because I believe, it is almost reached its peak. The Japanese YEN look sexier and undervalue and soon I might move into Ringgit again.
A good read about how a multi-currency account could be the answer to your Forex problems.
This is the part of the diagram where you want to reduce your cost with automation.
Set up “payee fund transfer” into your online bank account, most of the bank have already a selection of the utilities company such water, electric authority, mobile pop up, internet services and so on.
Set them on autopilot with monthly payments, saving you time and ensure execute payments in time.
Do you have a car loan? Pay every month automatically.
Mortgage on the house? Same again.
Don’t miss out credit payments, it is a waste to pay extra fees for late payment. I log in my online account every end of the month and I pay off every credit card.
In 13 years I own credit cards, I only pay once a fee of US$ 13 because some how I missed the payment. I’m still upset about it, I could have took my girlfriend to the cinema.
Have a Pina Colada
With all the time you will save after implementing this system, you deserve a Pina Colada and enjoy the beach like I do every weekend.