We talked about the advantages of automating investments and how “Analysis Paralysis” can be avoided by automating them. Not just investments, even predictable expenses should not cause us unnecessary shocks. And this is what I mean by “Automate your expenses”. It is actually “Automate the savings for your expenses” – but you would not read this if I told you that, would you? 🙂
I automate my savings for the expenses. For example every March I have to pay 50K as school fee for my son. I start putting in a Bank Recurring Deposit, 8.25K per month for 6 months starting September the previous year. So by the end of 6 months, I have got the 50K for paying off the school fee. That way I did not have to create 50K hole in my pocket every march! This should be done for any big ticket expense through out the year. I do the same for my different insurance premiums for the year, school fees, any taxes etc.
The ultimate benefits of doing this automation is that:
- We account for all expenses for the year and we know how much money we have in hand each month. This is one of the best way of living within a budget.
- Remember your savings into RD, actually earn you interest. Since you were systematic in saving for the expense, the expense will actually make you feel that it cost you overall lesser.
Once I gained this discipline, I did the next level to this automation. I saved in RD, but I paid them using credit cards and then repaid the credit cards immediately to gain valuable points. This also helps me to build a wonderful credit score for myself. But I recommend this for folks who know how to behave well with money. This is strictly not for an amateur or a person who already uses too much credit card.
