Automating your Financial Success

Posted by Jonathan Weyermann on December 26, 2017 at 12:00 AM

Automating ecommerce tasks

Many financial experts urge you to put away 10% of your income, or some such amount. Personally, I try to save a much higher amount because I wish to have the option to retire early. Whatever amount you choose, it should automatically be deduced in some way. While personally I don't have the temptation to spend money I should be investing, for many people it helps if the amount comes straight out of their bank account automatically, or doesn't even get there to begin with, allowing easier budgeting. Even if you don't have a discipline problem, putting the money away at regular intervals allows you to take advantage of cost-dollar averaging more easily, decreasing the risk of going all in on a market high. Further, it's one less step required. The less payments you have to think about manually each month, the freer you will be to keep track of other important things in your life. It removed willpower from the investment equation, which is a limited resource.

Investing through your work


If saving doesn't come easily to you,  the first place to start saving with the least amount of effort is to look for any savings plan your work offers. This would be a 401K in the US or usually a Group RRSP or a TFSA in Canada. These accounts are great because employers often provide some sort of matching (they'll contribute a percentage of your contributions, up until a certain point). Employers may also cover investment management fees, or at least they'll often be much lower than mutual funds banks offer, due to the group nature of the fund. Ideally the management expense ratio should be half a percent or less. Further,  these are usually set and forget. Typically you can choose a percentage,  and you'll get your matching automatically,  and if you get a raise your investment amount will go up proportionally. 

Further,  the money never comes into your bank account,  but goes straight to the investment fund. The investment fund can be as simple as a target date retirement fund you choose once when you set it up,  and is rebalancing and risk adjusted accordingly. It is really the simplest and least painful way to invest. 


DIY Investing

For those with a bit more financial attitude, investing through a broker,  while initially daunting, can still be a nearly automatic affair once set up. You can choose automatic transfers from your bank at regular intervals (for example,  on payday). From there on you will typically have to log into your broker account and purchase appropriate stocks or ETFs.  Having a broker that doesn't charge for ETF purchases (for example Questrade) is helpful here, as you may not be depositing much each paycheck,  and you don't want to lose money to transaction fees when purchasing only a few shares.

The key is to pick some sort of asset allocation (canadiancouchpotato.com is a good place to start or the allocations on https://www.acorns.com/investments/) and stick to it. That means that with all your additional contributions every pay period, you always purchase whatever asset will balance out your original asset allocation. This will help you to typically purchase etfs that have gone down in value, and purchasing less assets that are relatively overvalued in relation to the time period you made your initial contribution. This will allow you to rebalancing your portfolio without having to sell any stocks, until the the portfolio becomes large enough that the contributions themselves aren't mean full enough to balance the portfolio. 

By that time,  having to pay some commission to sell stock won't seem as painful,  as you'll be selling thousands of dollars worth of etfs to rebalancing. 

Rebalancing your portfolio ensure that your portfolio doesn't become over exposed to any one asset class or geographic region, and actually increases your return because it forces your to naturally sell high and buy low.

Staying within your investment account limits

I typically calculate the amount of contributions I'm allowed to make for the year, and then divide it by the number of contribution intervals. This gets easier then you're at your maximum,  as you don't have to recalculate every year.  While investing outside of tax-sheltered accounts can still be beneficial, it's nowhere near as effective as accounts that allow you to defer or eliminate taxes,  such as RRSP's or TFSA's. At the very least I want to make sure I'm using my contributions room. For example,  my TFSA contribution room grows by $5500 at the beginning of each year,  which means, I contribute $5500/26 = $211 biweekly, split between my work's TFSA and my Questrade TFSA. Going outside the limits for extended periods of time will cost you,  and you're much better off investing in a non-taxable sheltered account if you have extra money.

In conclusion, it's much easier to save and invest if you pay yourself first, meaning you automatically remove the amounts you wish to invest for your bank account on a regular basis.  This has the added benefit of allowing you to cost average your investment and reduces the cognitive overhead with having to make investment decisions.