Uncategorized

Building Your Automated Financial Hub

Building Your Automated Financial Hub

Not too long ago when doing my end of year analysis of what I achieved for the year when it came to my financial review, I was nowhere near achieving the savings and financial goals I had set at the start of the year. In fact it was another year that I had gone backwards! Looking over the year (and nearly all years since becoming an adult) it was clear that my financial blueprint was seriously out of whack and I had a lot of work to do to get in control of my finances.

I’d had enough of this (line in the sand time) and wanted to do something about it. Firstly I undertook my first proper financial audit (personally a very scary but a much needed experience) to find out where I really was financially and from there set out all the financial and savings goals that I wanted to achieve.

After going through my expenses and setting up my budget (taking into account the financial goals I had recently set) I then set up an automated financial hub to set my savings (and eventual investing) plans on autopilot. This enabled me to get myself out of my own way and have my savings and financial goals growing on autopilot.

Why you need a financial hub

Setting up a financial hub was one of the most important ways that helped me get onto the path of financial stability and eventually into investing.  In a nutshell this automated financial hub is setting up a transaction type account where your income is paid into this account and after expenses are paid (through direct debits from this transaction account) the (hopeful) surplus is transferred to a higher interest savings account. After building this savings account I was then able to invest this into shares, property, online investments, etc. helping me onto the path of financial prosperity.  

If you are one of the many who has struggled in the past with saving or aren’t in the strongest financial position, creating an automated financial hub can be a powerful tool to right your financial ship and get you on the path to financial independence.

Many financial commentators or so called finance experts have their own suggestions in setting up a savings plan or system. If you come across these and they work, awesome keep doing it. For me, what I used that helped me save money and improve my financial position was creating an automated financial hub. It worked for me and could also work for you. There are many layers which you could add to this however I wanted something simple, a system that can capture my income, pay all my regular expenses then transfer any surplus to my savings account and investments (after leaving a small buffer in the transaction account). If you want to add other layers such as adding additional accounts for one off expenses or play money accounts or travel money accounts, then go right ahead. The system you establish has to work for you.  

How to build your automated financial hub

I started by completing a rigid financial audit, literally tracking every dollar in expenditure over a couple of month period. I then removed any unnecessary expenses and regular debits, set some savings goals and away I went. I tracked all my regular debits that were to come from this account, directed my pay and any other net income to be deposited into this account, left a small amount to cover any timing issues (between money in an money out so as not to go into a negative balance).

So number one figure out where you are then put some goals down for where you want to be! Look at your current lifestyle and habits, keep the ones that are going to help you achieve your financial goals and eliminate the ones that won’t help.

As part of this review look at your current expenses and set a budget, one that will allow you some leeway to live life however won’t take you off track from achieving the financial goals that you have set. Remember budgets are like diets. Get too restrictive and they can do more damage than good. Everyone needs to live within limits, just don’t get too extreme.

After performing your financial audit, review all your expenses (and making any money saving substitutions) now is it’s time to start building your own financial hub.

Regarding the creation of my financial hub, I actually started this process with a pen and paper and mapped out what I was after. I started with a transaction account (Account 1) that could accept any earned income and would allow the various direct debits that I wanted to set up. Some of you might want an account that allows the creation of sub accounts for travel or play money.

I also created another account (Account 2) which was my savings, an account that pays interest and is where my surplus income is to be directed. Ideally your expense account would pay an interest rate however where I am based this wasn’t available so I set up a linked interest paying savings account to my expense account. When choosing your higher interest bank account you might also want to avoid having instant access to this (or at least having no ATM access to this account or the ability to pay bills/make purchases) savings account nor have this savings account linked to a debit/bank card.

As per my budget I added all the regular direct debits to come from my expense account and was on my way.

Building Your Automated Financial Hub
Example Basic Automated Financial Hub

Aims for your financial hub

For some of you, you may be that good with your finances (or already doing something similar) that you won’t need to set this up. For those of you with a more blasé attitude to finances and saving, this is an approach that may help you. For me the biggest outcome from setting this up was the discipline that this system instilled and once I set this up I didn’t really have to think about my everyday finances that much. I check in once a week to make sure that everything is working as it should however any worry that I previously had is now put towards focusing on building my income or investments. 

I sometimes shake my head at the stupidity of my past financial actions and the time wasted trying to get back on track after putting my head in the sand after the debts started piling up! However I am back on track thanks to setting up a budget and using a financial hub.

Other Simple Financial Tips

  • Take control of your finances at an early age. This will mean more money to invest at an earlier age which will allow the compounding affect of your savings/investments to work more to your advantage.
  • Don’t borrow any more money (at least for personal use) unless it is an absolute life or death emergency!
  • Set up your budget before you implement this. This financial hub concept will fall apart if you haven’t figured out the direct debits and regular bills that you will needs. Be more brutal on your budget if your financial situation is more perilous. You can put up with a short period of uncomfortable living to get yourself back on track financially.
  • If possibly keep an extra amount (or your emergency cash) in this account. I initially aimed for $1,000, then $2,500 in case there is an overlap of debits or a debit is made in error that could affect your other regular debits.
  • Set financial goals. Yes having an automated system will help with peace of mind however you want to challenge yourself with setting financial goals. After setting a budget dependent on your current financial situation, you will want to look for ways to improve your household income levels. The more you increase this (whilst keeping your monthly expenses to a decent level) the faster you will get to financial independence or at least a comfortable financial position.
  • If you can have your transaction account paying interest great though an issue I found with higher interest account is that there were transaction limits and in some cases no direct debit offerings so do your homework when selecting your transaction/savings account for your financial hub.
  • If you have a mortgage you might want to investigate whether you can offset your savings account to your mortgage (depending on what interest rates you are paying and what savings rate is available). 

For me and my situation setting up a financial hub (along with putting together a monthly budget and setting financial goals) was crucial in getting my finances back on track (as well as getting back some of my sanity).

For those who are struggling financial there may be some ideas that you can take from this approach and introduce it into your own plan to improve your financial situation.

For those living pay check to pay check this may be a struggle (at least in the early stage of the financial hub use) and if that’s the case then looking to boost household income (such as freelancing, driving, selling unused household items or pay rise/new job) would be the major focus initially for you.