- [Thomas] This video is
sponsored by Curiosity Stream. You can watch a full-length
companion video to this one when you sign up for the Nebula and Curiosity
Stream bundle, linked below. Hey, what's going on, friends? So in this video, we are
talking about something that I haven't covered on this
channel in quite some time, which is personal finances. Specifically, in this video, we are gonna talk about the single habit that more than any other allowed me to save up around $300,000 in my various investment accounts, over the last 10 or so years since I started investing
money back in college. Now that number on screen right there is not intended to be a flex of any kind, and it's also very much not intended to be something you should be comparing your own financial situation against. The only reason I am putting
that number on screen right now is to give a specific and concrete example of just how powerful the concept and the habit that we're
gonna talk about today is. And that habit is called
financial automation, or automating your finances. This is something I talked
about in my recent video on seven books everyone
in their 20s should read. And I had a few people
asking me to explain it in a bit more detail. So that is what I'm doing in this video. So essentially, automating your finances means first identifying
the habits and the actions that you need to take to
meet your financial goals, be it buying a house or
getting out of student debt or saving for retirement, and then taking those actions
and handing a lot of them off to a robot. Or to be more accurate, to a computer or a piece of software or a website that takes care of these actions for you. So in this video, I'm gonna teach you exactly why financial
automation is so powerful, why I practice it in almost
every area of my life where I can do it, and we're gonna go through specifically how I automate my own
finances in two key areas, bill automation and investment automation. So first, let's start with the why. Why do you wanna go
through all the trouble of setting up financial automations? Well, there are a couple
of key benefits here. Number one, you get access to a safety net and to huge peace of mind, because when you automate your finances, you will never miss a credit card payment. You'll never miss a bill payment. If there's something
you are supposed to pay, it is going to get paid. Even if you're on vacation
or you forgot to do it, or I dunno, for some reason, you're a sentient bear watching this video and you're gonna go
hibernate for the winter and sleep for three months. Doesn't matter, your
stuff is getting paid. Additionally, when you
automate your savings and your investments, your
consistency goes way, way up. And as a result, you're almost
certainly going to invest and save a lot more over
the course of your life. In fact, that is the reason
I've been able to save more than $300,000 over the past 10 years. Back when I was a sophomore in college, I opened my very first investment
account over at Vanguard. And because I had read
about financial automation in that book that I recommended in a very recent video of mine, "Your Money: The Missing
Manual" by J.D. Roth, I set up an automatic
deposit from my bank account to that investment account
every single month. Now at the time it was very small. I think I started out with 50
bucks a month going in there, just a little bit of money
from my part-time job being invested. But over time, I increased those amounts. And as I got into my career, they became significantly larger. And the most important thing is that they were happening every single month. And this consistency can
be incredibly powerful. And I wanna give you just
a small example of that. Say I would have started investing when I was a baby, back in 1991. Super smart baby Thomas. And I was putting $500 a month into essentially the entire stock market, an index fund that tracks
the entire stock market. That's $500 a month which
adds up to 6,000 a year or 180,000 over the course
of the last 30 years, from 1991 to 2021. But if they had done that consistently and they never took any money out of the market in the meantime, their money today would
be worth $1.6 million. Imagine, saving 180,000 and
turning it into 1.6 million. It sounds crazy, but
it's actually something that can be done quite reasonably by leveraging compound interest and by being consistent in your savings. And think about the person
who is doing this manually. If they're going in every single month and making the decision
to invest in the market or to move money from their checking to their savings account, that's 12 times a year they have to go in and manually do that, which means that they are potentially setting
themselves up for failure every single time. They might forget, they
might be on vacation, or they might justify to themselves that they need to spend the money on something else this time, and hey, I'm just gonna
get back onto it next time, I totally swear, man. That's one month they missed the robot certainly wouldn't miss. So for these reasons, I think learning to automate your finances is one of the most important
personal finance habits that you can learn. But there is at least one preliminary step that you should understand
and make sure you have taken before you start doing it, especially when we're
talking about investing. And that is establishing
what is called a cash buffer. And to explain that, I
actually wanna show you something that I've been
developing in my spare time called the Personal Finance Tech Tree. So I grew up playing
games like Civilization, where they had these tech trees. You had to learn things like metallurgy before you could learn
ballistics, things like that. And I've always thought about
my personal finance journey in a certain way that's
kinda similar to that. I have to do certain things, either learn certain things or hit certain financial milestones before I can move on to the next thing. So I've been thinking to myself, could I create a sort of actual map for these different financial milestones? And I've been working on this
in a tool called Whimsical that I'm gonna show you here. So basically I have these
little mapped out paths here for things like savings, regular income, installment loans, and basic budgeting. But the specific part that I
want to zoom in on right now is the one month cash buffer. This is what I think you should establish before you start automating your finances. And we can see here that this leads to first, a three month cash buffer, and then to the start of
your investing journey. But the real reason you wanna make sure you have a one month cash buffer is if you are automating your investments, you're automating bill payments. You're automating deposits
from your bank account into maybe an investment
account or a savings account, and you don't want those automations to draw your bank account down below zero. So essentially, a one month cash buffer is a buffer of cash for one month's expenses beyond what you're going
to spend this month. And when you have established
that in your bank account, you can be sure that
your current expenses, your bills, your
investments, your savings, your debt payments, are never going to draw
your bank account down to a negative balance. Once you've hit that milestone, I think it's a very good
idea to start looking at how you can automate different
parts of your financial life. So let's now talk about how I automate the bill payments in my life. Basically, anything that is
a regular monthly payment I have on autopay, if I can do it. So that includes my mortgage,
that included my rent when I was paying rent for an apartment, that includes my utilities payments. So internet, gas, electric, water, and that includes every
credit card that I have. And to go on a bit of a
tangent about credit cards for a second, I do not use
credit cards as credit cards. So your credit card gives
you access to credit, which you might even be able to tap even if you don't have
that much money on hand. I do not view credit cards that way. For me, a credit card is
simply a pass-through vehicle for money that I already have and I was already going to spend. I simply use credit cards to
get access to airline points and different perks and to
build my credit score over time. And I always, always, always, always pay off my credit card's balance in full every single month. I have never once paid a cent of interest to the credit card companies, and I think that is a goal that
all of us should aspire to. The credit industry calls
people like us deadbeats because we don't make
the credit card companies a whole lot of money. And I think everyone should
aspire to be a deadbeat. That being said, maybe you have some
credit card debt right now that you can't pay off in full, but what you should at
least do is what I do. Go into your credit
card and enable autopay. At the very least for the minimum payment. And the huge reason for this
is that your credit score is determined by several
different factors, but one of the biggest is your percentage of on-time payments. And even one missed
payment can be a huge ding to your credit score. So I always autopay my credit cards because it is a safety net. Even if I get knocked out for
two months for some reason, or I get lost in the
jungle for some reason, my credit card is going to get paid because the autopayment is set up. The other area where I use
financial automation in my life is with my savings and my investments. So I have some automatic
rules with my bank account to have money transferred
from my checking to my savings every single month. And then I have some different investments that are automatically
funded and deposited every single month as well. The main one is my 401(K)
through my company. That money goes into the 401(K) account before I even pay myself my payroll. And if you work for a
company that offers a 401(K), it's a very good idea to do this. Especially if they offer matching, because that's essentially free money. And then I also have a few different taxable investing accounts, basically non-retirement accounts, that I automatically invest into as well. Now there are some good habits to practice in addition to financial automation that are gonna make sure
you don't run into problems in the future. And I think the first one
is to put bill due dates on your calendar. You at least wanna know when your bills are going to be charged, even if they are automatically being taken out of your account. You basically wanna stay
on top of your finances. And the second big habit actually kinda goes into the exact same idea here. It's to do what's called a
monthly review of your finances. Essentially, the robots are
taking the actions for me, but every single month, I'm coming in and I'm staying on top
of all of my accounts. I'm making sure I know
where all my accounts are, how much money I have, and overall, I'm making sure that
I have a clear picture of my personal financial health. I think only a fool sets up machines and then doesn't check up on
them every once in a while. So by checking up, and by making sure I know
everything that's going on, I prevent myself from getting blindsided. In fact, I take this one step further. I don't just check over my balances. I actually have a custom-built
spreadsheet that I made to do some financial planning, to actually look over my average income, my average expenses, my average savings and investing goals. And I even have formulas that will show me how much roughly I'm gonna pay in taxes, what my take home pay is gonna be, and my percentage is split between how much money I'm spending
on my car, my housing, how much I'm saving, and
how much I'm investing. I even turned this into a
completely free template that anybody else can download and use. But what I haven't done
up until this point is actually make a video
showing exactly how I use it and how it works. So I have finally done that, I've made a complete and
full-length companion video to this video, going into
how I use this template and how I plan out my financial decisions, and I've uploaded it to Nebula. In case you haven't heard, Nebula is a streaming
service built by both myself and a ton of other fantastic
educational creators. And on Nebula, I upload my videos that
you see here on YouTube, both early and completely
free of ads like this one. It's also a place where we
can experiment with content that might not work very well on YouTube, such as, I don't know, a long and in-depth video
on my budgeting strategy. And there's a ton of other great
exclusive content on Nebula as well from a ton of creators
that I personally love. My friend Ali Abdaal for example, has a series called Workflow
where he goes in depth into the tools and workflows
that he actually uses in his business and in his work. And Real Life Lore, one of
my absolute favorite channels that I've been absolutely bingeing lately has a series called Modern
Conflicts on Nebula. It is just as long and high
quality as a normal video is, but it covers some more
controversial topics like history of the North
Korean, South Korean war, things like that, that would almost certainly
get demonetized on YouTube. So he puts that on Nebula, and I have been absolutely
loving that series. But the best part about Nebula is that it comes bundled with Curiosity Stream, which has thousands of
high quality documentaries that you can stream from almost anywhere. And right now, when you sign up for the Curiosity Stream and Nebula bundle over at curiositystream.com/thomas, you can actually get 42% off
of the yearly annual price. You can literally get
Nebula and Curiosity Stream for a full year for less than $12. It is seriously the best deal you're going to find in streaming. And once you do have
access to Curiosity Stream, one documentary that I've
been enjoying recently that I'd like to recommend to you is called "The Ascent of Money", which tracks the development of money and goes into the history of it. It's a really interesting series, so I think you're really
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thousands of other documentaries covering economics,
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those great documentaries on Curiosity Stream, as well as Nebula with all my early and ad-free videos and all those exclusive videos on Nebula, you can go over to
curiositystream.com/thomas, or click the link on screen
right there to sign up. Thanks as always for watching. Hopefully you found this video helpful. Hopefully you learned something new, and if you did, hitting that
like button for the algorithm would be much appreciated. Thanks again for watching, and I will see ya in the next one.
