Bulletproof Spending and Savings: Never budget again. Build wealth automatically.

I’ve been using a personal finance system for years now that allows me to know exactly how much I spend (and on what), pay all of my bills on time with zero effort, save and invest a large portion of my income. All of this takes me less than 15 minutes a week to manage on my smartphone. It’s both simple and powerful, and can be set up in less than an hour or two by anyone.

Financial expert Ramit Sethi was the inspiration for this system.

Step One – Grab a pen

On the back of a napkin, or on a spreadsheet, add up how much you spend each month on fixed expenses, things that are predictable and must be paid, and discretionary expenses, things that can vary a lot and can be delayed or changed when needed. Ignore expenses that come straight out of your paycheck like income taxes and health insurance, and don’t count any investing like 401k or IRA contributions.

Exact numbers aren’t needed. Overestimate your expenses since you’ll probably forget a few things, and it’s better to guess too high than too low. Take a maximum of 15 minutes to do this right now. Look at your online bank and credit card statements, especially year-end summaries, to quickly get an accurate estimate of your spending over the past year (including seasonal spending like winter holiday shopping and summer vacations.)

A single person who rents in a big city might have a budget like this:

Sample budget for single city person

Step Two – Take 20 minutes to set up free Capital One 360 checking and savings accounts

Do this even if you’re not ready to start the system yet. It’s free, you don’t have to deposit anything until you’re ready, and will only take a few minutes. Doing this now will make you more likely to complete the system later.

From this link, create a 360 Checking account. Pro tip: deposit $250 from your non-Capital One bank account if you wanna collect the $25 bonus. Link your other checking account either way so that it’s ready to go when you need it.

Capital One 360 Checking account Apply Now

Next, create one 360 Savings account for each of the ‘Discretionary’ categories sketched out in your budget that. If there are some categories that you don’t care about tracking individually, lump them back in with your Fixed list. I keep a separate Travel account, one for Household/Hobby items, and a few others. Limit yourself to 3 – 5 categories for simplicity. Make sure to give a nickname to each account to describe it (e.g.: ‘Travel’.)

Make sure to also set up discretionary accounts for short-term savings goals such as a future Wedding, New Car, or House Downpayment, for things you expect to purchase within the next 1 – 2 years. (Longer-term savings goals like Retirement will be handled separately.)

Finally, create one more 360 Savings account and label it ‘Short term Savings’. This will be where all of your income above your monthly spending (Fixed + Discretionary) will go. For example, if your take-home pay is $4,000 per month, and your expenses are $3,000, that extra $1,000 will be put into ‘Short term Savings’ for you to invest later.

To protect yourself from accidentally overdrafting your Checking account, click your Checking account, then click ‘Account Services & Settings’ and ‘Overdraft Settings’. Choose ‘Free Savings Transfer’ and choose your ‘Short term Savings’ account. This will allow Capital One to automatically pull money from your Short-term Savings account into your Checking if don’t have enough to pay your bills. If this should happen, you need to ‘refund’ yourself by moving money back into your Short-term Savings account from either your Checking or discretionary Savings account to replace the overdraft.

Setting up overdraft protection with a free savings transfer Capital One 360

Make sure to choose ‘Free Savings Transfer’:

Free Savings Transfer

Step Three – Redirect your employer’s direct deposit to your new Checking and Short-term Savings accounts

You’re doing great! Keep going and don’t get bogged down by the one-time annoyance of these last, crucial steps. If your employer offers direct deposit of your paycheck into your bank account (most do), set it up/change it so that your monthly Fixed + Discretionary amount is going straight into your 360 Checking account. See the FAQ below if you aren’t able to do this because.

In our $3,000/month example, if you get paid monthly, then set your direct deposit to put $3,000 per paycheck into your Checking, with the remaining balance going into your Short term Savings. If you get paid twice per month (semi-monthly), divide by two and deposit $1,500/paycheck into Checking. For biweekly/once every two weeks, multiply your monthly amount by 12/26 (ex: $3,000 * 12/26 = $1,385 per paycheck.)

(If you haven’t already, make sure to set up pre-tax contributions to your company’s 401k  with at least 10%-20% of your paycheck up to an IRS-maximum of $18,500/year (for 2018), or at a bare minimum, enough to collect any employer matching that you might be eligible for. If you use an HSA, you should also schedule automatic contributions to come straight out of your paycheck via your employer.)

Step Four – Set up automated transfers from your 360 Checking into your Discretionary 360 Savings accounts

From Capital One 360, click any account, then click ‘Transfer Money’ (top-right), and set up your ‘Monthly’ budgeted amount for the 5th of each month to go into one of your Discretionary category accounts (ex: $300 for Travel.) Do this for each of the accounts you created earlier. Make sure to first fund the account with a months’ worth of money, or schedule the transfer far enough out to give time for your direct deposit to occur.

Monthly discretionary transfers

The idea behind this is that from now on you’ll first check to make sure you have enough money in that discretionary account before you spend it.  After you spend the money, you’ll transfer the amount spent into your Checking account (or wherever the bill will get paid from.) Let’s say I want to buy a new couch that will cost $400. I first make sure that I have at least that much in my Household saving account, then I buy the couch with a credit card that auto-pays from my Checking account. Right afterward, I transfer the $400 from my Household account into my Checking, so that when my credit card bill comes due my Checking has enough in there to pay the added couch expense.

Step Five – Redirect your credit cards, payment accounts, and other bills to all get paid automatically out of your 360 Checking account

Now that you’ve set up all your accounts and recurring transfers and deposits, set up autopay on any credit cards or other bills that you have to come from your new 360 Checking account, preferably on the 3rd of the month, if you have a choice. Make sure to also make your 360 Checking account the default choice for any payment services you use like Paypal/Ebay, Venmo and Apple or Android Pay.

Go through every utility and service provider that you get a bill from and set up autopay, opting in to paperless emailed statements as well, including your landlord or mortgage company.

I try to pay all my fixed expenses with one credit card for simplicity. When I can’t pay by credit card, I use automated bank transfers, like for my public utilities, or online rent payments. (You can also get cash from your 360 Checking with no fees from any Allpoint ATM, and can request physical checks too from Capital One.)

Even rent payments to old-fashioned landlords that require checks can be automated since Capital One 360 allows you to schedule mailing a physical check using their bill pay.

You can also use a special credit card to pay for one specific discretionary category, and then set up that card to autopay straight from that Savings account. I use a ‘No Foreign Transaction Fee’ credit card specifically for travel expenses which I autopay straight from my Travel savings account, but then use a different rewards card for all my other expenses.

Congratulations, you’ve finished the one-time setup and are ready to use your new bulletproof financial system!

Step Six – Ongoing maintenance: transferring discretionary payments

Anytime you want to spend money that falls into one of your discretionary categories, 1) check to make sure you have that much in your corresponding Savings account, then 2) once you make the purchase, immediately transfer the spent amount from the corresponding Savings account into your Checking account (ehere the bill will get paid.) I use the Capital One 360 mobile app. This is the one manual step that you must do to stay on budget. Get in the habit, and it becomes second nature. You can also juggle money between discretionary accounts as needed. The only Iron Rule is to stick to your total spending goal of Fixed + Discretionary.

If you find that your estimates weren’t quite right, and you want to adjust how much you spend in different categories, or need more or less to be deposited into your 360 Checking each month, just tweak the steps above. The goal here isn’t to deprive yourself of spending money on things you love, or to meet someone else’s standards of what you “should” spend money on. Instead, you set your own spending priorities in a way that will keep you ‘honest’ on them, while allowing you to spend every dime that you’ve allocated for yourself guilt-free, since you know that your savings & budgeting is now all being taken care of automatically.

Step Seven – Ongoing maintenance: investing the Short-term savings for the long-term

You should periodically invest all of that money that will be piling up in your Short-term Savings account. Log into your investment account (or open one) and link your Short-term Savings account to it so that you can electronically transfer money.

Whenever I notice that a thousand bucks or so have accumulated into my 360 Short-term saving account, I log into my Vanguard investment account and transfer it into my Target Retirement Fund. Choose a Target fund with a year that is 15 years after your planned retirement date. E.g.: if you’re 30 and plan to retire at age 62 in 2050, choose the 2065 option. Fidelity and other money managers also have these funds. Make sure you’re paying low fees (less than 0.2% is ideal) and are broadly diversified.

There you have it. In just a couple of hours you’ve completely changed your financial life so that you know exactly how much you’re spending each month (without any ongoing budgeting), and have put yourself on the path to saving for financial independence.

Closing Thoughts

Each year, or whenever you have big money changes (have kids, buy a house, get married, change jobs), you can review your plan and adjust as needed, but try to set something that you’ll stick with for a long time so that you can truly be following the plan that you set for yourself. For me, sticking to my original budget that I set for myself 6 years ago has become a [nerdy] financial challenge that’s allowed me save more and more as my income has increased while keeping vmy spending constant. (But I’m definitely not depriving myself; nor should you! There’s still plenty of room in my personal budget for my hobbies, trips overseas, whiskey, and nights out with the lady or friends. Instead, the budget forces me to build DIY skills and prioritize what’s most important in my life.)

Recommended optimizations – Get cash with no ATM fees anywhere in the world

Whew… We’ve covered a lot of ground, but there’s one more item I recommend doing. If you use cash for some of your expenses, set up a Charles Schwab Investor Checking account. You can then use that to withdraw money from anywhere in the world and Schwab will refund your ATM fees at the end of each month. You’ll have to set up a Schwab brokerage account too, but there’s no obligation to fund or use it. (I don’t, and I’ve had the account open for years with no problems.)

I like to use cash as my going out/eating out/fun money so that I don’t have to worry about transferring money to my Checking every time I want to eat out or buy a drink at a bar. There’s also something about physically seeing the ‘pocket money’ I have for the month that helps me mentally plan out what I can spend. To make this easy, I add one more direct deposit step that sends my cash to my Schwab checking account each pay period. For our $3,000 example, let’s say our Single Person wants to use $250/month in cash to pay for Going/Eating Out. Instead of creating a Capital One 360 Savings account for that, their direct deposit will send $250 straight to Schwab from their paycheck, and only $2,750 to their 360 Checking, with the balance still going to Short-term Saving as before.

Now, they just use their Schwab ATM card whenever they need cash (and will get a ‘hard-decline’ by default if they run out, which is free, but could be embarrassing if you’re using the card as a debit in a public setting :). Just use your credit card as a fall-back and transfer money later if this happens!)


Q: What if my employer doesn’t offer direct deposit / they don’t allow me to specify a fixed amount to go to one account and the balance to go to another / I’m self-employed?

A: Just deposit your whole paycheck into your 360 Short-term Savings account. Then, within Capital One, click any account, click ‘Transfer Money’, and schedule a monthly transfer of your monthly budget amount (ex: $3,000) at the beginning of the month from your Short-term Savings to your 360 Checking account:

Capital One 360 Transfer from Savings to Checking

Q: Do I have to use Capital One 360 for this system to work?

A: Ally Bank will work for this system too. Whichever bank you choose must let you create multiple savings accounts for free with no minimums, AND schedule recurring automated transfers between accounts. Feel free to suggest other banks that meet these requirements and that you have personally used in the comments.

Q: Why schedule the transfer for the 5th of the month?

A: Scheduling for the 5th of the month will help group all your monthly bills together, ensure that any end/1st of the month paychecks have time to hit your account beforehand, and that 1st of the month bills like rent get paid first. You should also set up your credit card(s) and, if possible, other bills to be paid around the 3rd or 4th, just prior to these transfers.

Q: What if I’m retired?

A: Just treat your fixed income, such as social security or a pension, as your ‘paycheck’, and deposit it in the way described above. If you’re also drawing down your personal retirement investments, you can set up monthly recurring withdrawals to fund your checking account.

Ramit Sethi will teach you to be rich – 4 links to wealth: negotiate, automate, cut costs & earn more

Ramit Sethi is my favorite financial blogger and advice-giver for the ‘basics’ (which can still be complicated) of personal finance: spending, saving and earning income.  He recently railed against those who worry about things that they can’t control, yet fail to do the simple steps that will really matter.

His quoted question below to these people (and everyone else who needs to take control of their money) have 4 excellent starting points (links) for personal financial freedom.  Check out each of these and apply them to your financial life.

“Have you negotiated? Automated? Earned more? Taken the 30-day challenge to save $1,000?”


Ramit stresses the importance of negotiating all things financial, from credit card interest rates, getting out of bank fees, to your next salary raise.


The best way to save is to automate the process so that no active effort is required on your part.  This can be anything from setting up direct deposits on your paycheck (most employers allow you to split the check into multiple accounts, the better to target your savings goals), having 401k deductions come out of your check, or using Vanguard (or whoever your mutual fund provider is) to invest money from your bank account on a regular schedule.  (If you already have a Vanguard account, go here.  If you need to set up a Roth IRA or other financial account, go here.)

Earn More

Expenses are only half of the financial coin of savings.  Earning a healthy salary is also a big help along the road to wealth.  Here’s a few ideas on how to make more money:

Get an education (academic or vocational, formal or informal) that increases the worth of what you know, and your ability to apply that knowledge and make money (or other benefits) from it.

Ask for a raise at work.

Start your own business on the side, or find a part-time or freelance job that you can do in your spare time.  (Make it something you enjoy and that energizes you, otherwise it’ll be hard to force yourself to do it given your other work/life commitments.)

Save Money – Enter Ramit’s ’30 day challenge’

Ramit put together a fantastically useful list of 30 tips (described in each of the links below) to save money.  These aren’t the typical ‘stop buying lattes’ ideas generated on so many financial blogs.  Instead, they’re likely to save you big bucks without taking away the things that you really enjoy in life.

While I’ve copied Ramit’s entire list below (with his links for the details of each tip), his original post can be found here.

Full list of Ramit Sethi’s tips from iwillteachyoutoberich.com
Tip #1: Pack lunches for the rest of the week
Tip #2: Turn your thermostat down 3 degrees
Tip #3: Sell something on eBay today
Tip #4: Involve your friends in your savings challenge
Tip #5: Optimize your cellphone bill
Tip #6: Use gas prices to become your own hedge fund
Tip #7: Create a “No Spending” day once a week
Tip #8: Implement the A La Carte Method
Tip #9: Only buy new things when replacing something old
Tip #10: Use the free rewards from your credit card, car insurance, and workplace
Tip #11: Never pay full retail price for clothes or eyeglasses again
Tip #12: How I’m saving $2,000+ on eating out in 2009
Tip #13: How to negotiate your car insurance
Tip #14: Use self-persuasion to share how much you’ve saved so far
Tip #15: Forget going to a bar — ask people over for dinner
Tip #16: Cancel any large purchase this month
Tip #17: Buy generic for the stuff you don’t care about
Tip #18: No Christmas gifts this year
Tip #19: Save Money, Eat Well and Look Hot in Less Than an Hour
Tip #20: Change the date of Christmas
Tip #21: Save thousands by pre-paying your debt
Tip #22: Analyze your progress in the 30 Day Challenge (plus, see how I’m doing)
Tip #23: Go cash only for 15 to 30 days
Tip #24: Cut your commute expenses by 40%
Tip #25: Earn more money using your God-given skills
Tip #26: Gardender? Cleaning lady? DIY instead
Tip #27: Use barriers to prevent yourself from spending money
Tip #28: Use price-protection guarantees to always get the lowest price (travel, retail)
Tip #29: Stop being a loser and spend money to save money
Tip #30: How I’m saving $25,000+ in 2009


Automating your finances (Ramit Sethi-style)

I’m a big fan of automation, especially for personal finance & investing (think automatic 401k withdrawals.)  A ‘classic’ video from Ramit Sethi is at the bottom of this post, outlining his approach to automating your money.  I recommend watching it (12 minutes) and trying to automate your own money to the extent possible.  It takes a little up-front effort (which you never have to leave your computer chair for), but it pays off big time in making life simpler & helping you effortlessly hit your financial goals.

Using INGDirect for online banking is a big step in the right direction on the automation front.  I use them to automatically mail out my monthly rent checks, and to automatically put pieces of my direct deposited-paycheck into various high-interest savings sub-accounts.  Here’s how I do it.

How I automate my money

I generally have a ‘cycle’ of automatic things that happen per each paycheck.  A certain percent goes to my 401k at Vanguard (and invested according to the index funds I picked.)  The remainder (minus taxes and insurance premiums) is direct-deposited into my ING checking account online.  Of that, a fixed dollar amount goes into a vacation sub-savings account, an account for money that I spend on myself to make more money, and to my no-ATM-fee Charles Schwab checking account that I use for miscellaneous cash needs.

Once a month, my rent check is automatically mailed out to my landlord from my ING checking.  All my other bills (including utilities, cell phone, internet, etc) have been set up to be automatically paid by my credit card.  Thus, I just have one automatic credit card payment out of my ING checking that occurs monthly.  (Some bills can be set up to automatically come out of your bank account if paying by credit card is not an option; but I prefer the latter for the simplicity.)

Anything left over is available for me to either spend (without feeling guilty since I’ve hit all my savings goals), or add to my savings.  If you know me, you can guess that I generally choose the latter, but every once and a while I loosen the purse strings and splurge on myself in the form of good beer or relatively-inexpensive travel.  (I know, I know, I’m a wild man when it comes to my spending sprees.)

Below is a picture from Ramit’s post (linked below) that illustrates how this works:

Having my money automatically going to various savings places BEFORE I get to spend it on discretionary items is part of the idea.  I’m ‘paying myself first’ as the mantra goes.  Of course, you’ll want to have a rough idea of your more ‘mandatory’ spending like rent/mortgage, utilities, gas, groceries, plus a little spending money so that you can estimate how much you can sock away.  If you want to have more money to save, scroll down to the 30 excellent tips in this post.

Ramit’s more detailed explanation


Ramit outlined the approach he discusses in the below video in a blog post here as well.

On happiness and choice: mindful ways to feel better about life

I watched a ‘TED Talk’ by author & psychologist Barry Schwartz on the ‘paradox of choice‘.  He explained why too much choice can make us less happy than we would be if we had fewer choices.  This is because with many choices we 1) have more regrets about our choices, 2) feel the loss of the ‘opportunity cost’ of the options we don’t choose, 3) expect more from the choice we make, and thus are more frequently disappointed, and 4) blame ourselves when we’re disappointed, since, with so much choice, we have no one to blame but ourselves if we make a bad decision.

Check out the video for more on this reasoning.  Schwartz’s arguments are a stark departure from the usual line of reasoning in Western thought which argues that more personal liberty and freedom equals more choices (and vice versa), and hence greater societal welfare.

As Schwartz argues, and as empiricalhappinessstudies have shown, this appears to be false for prosperous societies like ours.  While choice is wonderful up to a point, too much of it can be bad for us.  (Unlike poorer or dictatorial societies, whose problem is not enough choice.)  Studies suggest that, despite the proliferation in material & social gains, human happiness has not increased in the United States since 1950.

I wanted to share my own thoughts (warning: this is an ‘opinion’ piece!) on this, and provide some personal recommendations on how to minimize the harmful effects of too much choice.

Simplify, simplify

Take a page out of Thoreau’s book (it’s called ‘Walden’) and voluntarily cut down on choice by simplifying your life.  By reducing the things that absorb your time and energy without producing commensurate benefit, you can focus on what really matters to you.  Consider limiting your exposure to television advertising and shopping malls.  They increase your material options for things that probably won’t make you much happier after owning them for a couple months.

Experiences, on the other hand, increase in value over time.  Spend money & time acquiring good memories instead.  Or, provide more choices for those who WILL benefit from them by contributing charitably to poor nations.

The secret to happiness

Simplification notwithstanding, there are obviously many benefits to choice.  Being able to decide whom to marry, how many children to have, what job to work at, where to live, etc allow people to pick and choose the things that they believe will make them the happiest (within the range of their ability to attain these things.)  One of the problems with all of the great choices we have (think food, electronics, cars), is that people’s expectations have increased along with their improved options.  There’s much truth to Schwartz’s statement that ‘the secret to happiness is low expectations.’

To me, I think of this as a difference between absolute and relative value.  The standard economic model of human behavior is that humans care about absolute value, or how much stuff/money/time/pleasure we have on a zero to infinity scale.  Thus, if you can choose between 25 different digital music players, and can select the one with the most valuable features, you’re better off than only being able to pick from 2 players with less gadgets.

However, what humans also care about is how things match up to their expectations.  If you already expect your digital music players to do 10 things, and the new player does 11 things, you may only feel ‘1 thing’ better, but not 11 things better.  This may be easier to see in how people feel about their jobs.

Folks in the western world have more purchasing power, work less hours in more comfortable surroundings, and have more free time than any generation before us.  Despite this, many of us still hate our jobs, even though, on an absolute scale, we’re way better off than even our parents’ generation.  (Read ‘The Progress Paradox‘ if you don’t believe the last part of that sentence.)  A big reason for this is because we’ve come to expect certain characteristics in our jobs.  We measure our happiness by how much our job meets, exceeds or fails to exceed the things we take for granted.  (Like leisure time, health benefits, wages that allow us to live in large houses, own multiple cars, and never go hungry.)  If this is true, how do we learn to appreciate the ‘absolute’ value in the objectively luxurious (by historical standards) lifestyle we live?

Be appreciative at every opportunity

One way is to be actively conscious of how fortunate we are, and to remind ourselves of the good things in our lives (rather than constantly grouse about the negatives, something humans are particularly skilled at.)  For example, the next time you’re at the grocery store complaining about the unripe bananas in January, remind yourself of how amazing it is that we have access to cheap, out-of-season produce every day of the year.

Being appreciative is also important when confronted with even better versions of the stuff we already have.  Some of the happiness literature (cited above) suggests that envy is responsible for part of our failure to enjoy the immense material wealth that’s been created over the last 60 years.  When your neighbor gets a new BMW, your own Toyota Corolla doesn’t look so great in comparison.   (Never mind that your car has excellent comfort, performance and safety features, especially when compared to cars of just a few decades ago, or the fact that you were perfectly happy before your neighbor’s purchase.)

Be appreciative of people as well.  Complimenting those around you for what they do increases your happiness as well as theirs.  (Psychologists have shown this empirically; people who are more appreciative are happier than those who aren’t.)  It’s easy to take the nice things a spouse or friend does for you for granted.  Be mindful of when someone is doing something beneficial for you, and praise/reciprocate accordingly.

Be appreciative of random chance (or Providence, depending on your viewpoint) and remember all the good luck you receive, and try not to dwell on the bad.  Everyone can bring to mind the last time they were stuck in grinding traffic, but what about the last time your commute was a breeze for some inexplicable reason?  Did you remind yourself how fortunate you were at that moment?

Don’t be too hard on yourself

While I believe that people should hold themselves to high ethical and behavioral standards, I also think people beat themselves up over things that, when put in perspective, are actually quite trivial.  Even if you make a big mistake, it doesn’t make anything better to simply feel guilty about it.  Focus on the future instead: repair the damage if you can, cope with it if you can’t, and consider if you need to take preventative action going forward.

I know someone who has been agonizing about leaving a job they don’t like, mostly because they’ve invested a lot of time and effort into this career path.  They spent a lot on school to receive a specialized degree to go into this field.  They spent several years gaining experience on the job.  This person dislikes the job, but feels guilty about quitting because they’ve put so much into it.

The bottom line is, they can’t get back the time and money they spent for their current profession, so there’s no point in feeling bad about it.  Instead, they should focus on answering questions that matter like: will it make me happier to leave this career for a new one?  (Yes!)  How can I find a new career and avoid making similar mistakes in my next job?  Note that these questions deal with the controllable future, not the uncontrollable past.

Worry about what you can control, steel yourself against for the rest

This last suggestion is particularly apt to investing and my point about letting bad luck go.  In investing, the best you can do is make smart choices in the present with respect to your goals and needs.  For most people, low-fee stock index funds are the way to invest for distant goals, like retirement.  If you have $100,000 in such a fund for a retirement that’s 20 years away, and the fund drops by 25% the next day, should you feel remorse for your decision?  No!  When uncertainty is involved, rationally expected results should determine how you evaluate your decision-making, not actual results.  To see why this is true, imagine the following gambling scenario:

Multi-billionaire Bill Gates offers you the following proposition: You’ll flip a quarter, and if it comes up heads, you get $2 from Gates.  If it’s tails, you pay him $1.  Do you accept this flip?  (Make the decision in your head for the purposes of this thought experiment.)

Now ask yourself: if the coin comes down tails (you lose $1), does that mean you made a bad decision (before the flip occurred)?

Assuming your goal in this scenario is to make money, the answer to the first question is ‘yes, take the flip’ and the answer to the second question is ‘no, you made a good decision even though you lost.’  Let’s see why: 50% of the time, you win $2, the other 50% loses you $1, for a net average gain of $1 (= 2 – 1) for every two flips.  This is a positive ‘expectation’ (average result) of 50 cents per single flip.  With each flip you ‘expect’ to win 50 cents on average, so ‘yes’ you want to flip.

If the coin comes down tails, losing you a buck, did that change your expectation before the flip?  Of course not, you still had a 50 cent expectation.  Thus, even though you lost, you made the right decision in terms of maximizing your expected profit.  Similarly, your expectation for future flips is still a positive 50 cents, so you should offer to keep playing with Bill no matter how many times you lose (or win.)  (If you can flip fast enough and/or get Bill to raise the stakes, you’ll eventually bust one of the richest men in the world.)

This example can be applied to life, albeit with less clarity.  If you made a decision that seemed like a good one based on your rational evaluation of the information you could get, that’s the best you can do.  In the investing example, since market movements are impossible to predict with any accuracy (run from, or punch, anyone who tells you otherwise), there’s no point in kicking yourself if the market dives unexpectedly.  (The same goes for congratulating yourself on your wise intelligence if the market soars.)

Instead, be emotionally prepared to cope with the misfortune that is sure to come to everyone in greater or smaller amounts in life.  Counting the positive things in your life will help.  (I remind myself of my wonderful wife, friends, family, ridiculously good looks, and the existence of microbrewed beer whenever I’m feeling down.)

If your decisions repeatedly turn out badly, you should reexamine your thought process to make sure you’re really making rational decisions based on good information.  (This is because similar repeated outcomes suggest that luck is not the reason for them.)   Ask your friends or family to check your logic.  They should be quick to tell you if, say, you’ve dated obvious jerks in your last three relationships and need to stop kidding yourself about your ‘bad luck’ with love.

I’d love to hear comments from folks on how they’ve dealt with choice, and their thoughts on what I’ve written above.  Good luck implementing the above in your own life!

Automate your finances – Perspectives from the Fool and Ramit Sethi

Below is a good summary of the automations you can make to simplify and improve your finances, courtesy of the Motley Fool:

Use the tips in this article and automate:

1) Your savings via direct deposit of your paycheck to your checking or savings accounts.  Depending on what your employer allows (ask HR), you can break up your direct deposit by placing some of your money in a checking account and some in a savings or brokerage account.

2) Your retirement via 401k contributions straight from your paycheck.

3) Your credit card bill by automatic payment of at least the monthly minimum plus whatever else you can afford (if you have a revolving balance) or the whole amount each month (the preferable choice.)

4) Your other bills by signing up for automatic payment on utilities, student loan, car payment, and even your rent or mortage (using your bank’s online bill payer if the company you’re paying doesn’t have an online payment option.)

5) Take a page out of Ramit Sethi’s book by opening high-interest savings accounts to auto-save for large purchases like weddings, cars and houses, or smaller things like a plasma TV or that $500 pair of Jimmy Choo heels.  (A really fantastic article on finance automation by Sethi is link here.  The article gets into the nuts and bolts of how to picture and implement the above.  I highly recommend reading it.)

Automate your finances to save time, money and peace of mind!

How to get off paper mail, email and telemarketing lists

As part of my campaign to help people simplify their lives, I’ve provided some links below for an important and easy-to-complete step:  Removing yourself from junk (e)mail and telemarketing lists that the post office sends us.

This helps cut way down the amount of time-consuming junk we have to sift through and phone calls we have to answer and patiently explain that “no,” in fact, we’re quite happy with our long-distance telephone service.  As a side benefit, this also keeps us from getting sidetracked by things that we might be tempted to buy, despite the fact that until received a “free” catalog in the mail, we had no desire to purchase them.  (Reducing your junk mail is also better for the environment.)

Step 1) To get off ~80% of direct mail marketing lists, go to https://www.dmachoice.org/ and register for an account.  Then, go through the 4 categories of direct mail and request that all mail be STOPPED.  (For credit offers, you’ll have to follow a link on DMA Choice to a separate site (OptOutPreScreen.com), and either electronically remove yourself for 5 years, or (my recommendation) print out and mail in the paper form to be removed PERMANENTLY.)

Step 2) From the same folks that brought you the above link, go to http://www.ims-dm.com/cgi/optoutemps.php to remove up to 3 emails at a time from commercial emailing lists.  (You’ll still get spam email from other sources outside of the DMA’s control, but this should help reduce the total burden.)

Step 3) Go to https://www.donotcall.gov/register/reg.aspx to register up to 3 phone numbers at a time (including cell phones) with the federal governments National Do Not Call list.

Step 4 (optional) For getting off specific catalog mailings (such as ones from companies that you had bought from in the past), go to http://www.catalogchoice.org and they will submit an email on your behalf to remove you from whichever companies’ catalogs you select.

Step 5 (optional) To get off Red Plum specifically (I still got it even AFTER calling those bastards!), go here: https://www.redplum.com/tools/redplum-postal-addremove.html

Lastly, should one of these links no longer be valid, the FTC has a good recap of the above here: http://www.consumer.ftc.gov/articles/0262-stopping-unsolicited-mail-phone-calls-and-email

Each of these registrations is free, and with the exception of the mail-in credit offer removal in step 1, can be done in about 5 minutes online (with a valid email account for activating some links they’ll send you to confirm removal.)  If at any time you decide you actually WANT to receive junk mail/telemarketing calls etc, you can change your preferences with each organization.

Just follow the instructions for each removal link, and in the time period that it takes for your name to be removed from each list, you should be on your way to lessening your burden of everyday time-wasters and consumption encouragers.  After completing steps 1-3, complete step 4: grab a beer and reward yourself with a little of the future time you’ve saved.

The two most important books you’ll ever read on becoming (and staying) wealthy

If I had to choose any two books to recommend to people who want to become financially independent, what do you think they would be?  Maybe Warren Buffet’s excellent biography ‘Buffett: The Making of an American Capitalist’by Roger Lowenstein?  Perhaps Buffet’s compilation of Berkshire Hathaway letters to shareholders.

Surely at least ONE of the books would be written by or about a famous investor, or contain at least for key insights into stock-picking, real estate, how to be successful in business or another get rich plan?  Judging from the tone of this article, you can probably guess that the answer is “no” — and you would be right.

The first book that I believe gives the best advice on how to be successful in your financial life (and how to make your children successful as well) was written by two professors who set out to study millionaires.  What they found surprised them.  In ‘The Millionaire Next Door’, the authors discovered that those with over a million in assets were NOT the people driving expensive vehicles, renting high-priced downtown apartments or drinking Dom Peringnon.

Instead, many of the millionaires they studied had the following seven traits, which the authors flesh out further in the book:

1. They live well below their means.

2. They spend their time, energy, and money in ways leading to wealth.

3. They do not worry about social status, preferring financial independence.

4. They did not receive a lot of financial help from their parents.

5. Their own adult children are not financially dependent upon them.

6. They target opportunities that benefit from large amounts of spending.

7. They work in the right jobs, often for themselves.

I believe, as do many others, that the most important of these commonalities is number 1 – living well below your means.  I think the authors might agree with that priority when they write: “Being frugal is the cornerstone of wealth building. … [F]ew could have ever supported a high-consumption lifestyle and become millionaires in the same lifetime.”

After reading “The Millionaire Next Door,” you will have seen the blue print for attaining wealth. However, implementing that plan is the hard part. Living below your means, regularly investing (and rarely taking capital back out), and foregoing some of the perks that TV commercials and rap songs have convinced us we “deserve” takes discipline, faith, and hard work.  This difficulty is why I believe the second most important book to read with respect to wealth building is Elaine St. James’ ‘Simplify your Life’.

St. James’ lays out 100 ways to simplify your life.  The idea is that as Americans in our modern world we’ve become to obsessed with “keeping up with the Jones’s”, buying bigger houses, flashier cars, and working longer hours to pay for it (while starving our retirement funds, I might add.)  Her goal is to show people the way to reduce their consumption while simultaneously increasing their happiness.  She recommends “selling the damn boat” and consolidating your investments to help reduce the time, money and worry in one’s life.

While St. James’ book is not dedicated solely to reducing your expenses and making you wealthy, it gives the proper framework to get the most out of life without rampant consumerism.

Taken together, I believe “The Millionaire Next Door” and “Simplify your Life” will show you the plan to wealth, and then help you execute it.  Start living cheaply right now and check ’em out from your local library for free!