One Hour per Month, or The Beauty of Financial Automation

champagne in snow

Happy New Year, my friends! Here in Western Pennsylvania, January has been testicle-retracting cold, even in the warmest of slacks. Our family is only now recovering from a holiday filled with guests and roasts and toasts. We celebrated the raucous New Year’s Eve of 30-something parents everywhere: too much food, a couple glasses of bubbly, and a 10 p.m. bedtime for mommy and daddy.

January 2—the first business day of 2018—not only brought flurries of frozen precipitation, but also flurries of financial transactions at the Curious household. Along with tax time, early January is period in which I spend the most amount of time on our personal finances. How much time?

Thirty minutes, maybe an hour.

This is no humblebrag, and certainly doesn’t reflect any particular financial acumen or mad investment skillz on my part. I would guess most individuals who have a passing interest in personal finance spend a similar (small) amount of time actually executing the necessary financial transactions throughout the year.

In this post, I explain how I do it.

baby curious
So easy a baby could do it? Probably not.

First, some homework

If you are reading this website and other personal finance blogs, there is a good chance you are familiar with much of the terminology and techniques I will discuss here. If you aren’t familiar, don’t worry: I was just like you a few years ago. 2018 could be the year of your financial education!

I’ve been asked more than once how long it takes to learn the basics of personal finance and become comfortable managing one’s own finances. My answer: more than a weekend, but much less than a year. My 4-year-old would call it a “medium” amount.

How much do I need for retirement? What is a sustainable withdrawal rate in retirement? What is a stock/bond/mutual fund? What is asset allocation? What should my asset allocation be? What is the difference between tax-advantaged (401(k)) accounts and taxable accounts? Do I need to save in both of these for retirement? What is a 529 plan, and how much should I save for college?

As you might imagine, it would be a challenge to summarize these answers—which took me a few months of reading to answer for myself—into single blog post. Elsewhere, such as on the White Coat Investor website and Bogleheads, you can find many great articles summarizing much of this information. Following my initial education via financial blogs and personal finance books, I now spend very little time and energy managing my personal finances. How little?

It takes me, on average, one hour per month to manage my personal finances. And I wouldn’t have it any other way.

I still read about finances and there is an occasional additional nuance that enhances my knowledge, but the basics generally remain the same year to year. The truth is that—while I like reading about personal finance well enough—I consider it a means to an end. I could imagine a thousand other subjects I would like to read about or activities I’d like to experience rather than sit down with the new edition of “A Random Walk Down Wall Street.

So how do I spend just one hour each month to manage all my personal finances?

The automatics


First, there are a couple of important items on which I expend minimal (if any) time and energy.

  1. 401(k) retirement investment
  2. Bills

These two items are obviously critical for financial health. Why do I neglect them so?

Because it is simpler and more effective for me to automate them.

401(k): Contributions to both my wife’s and my 410(k)-style retirement plans are deposited regularly by our employers and automatically invested in the mutual funds of our choice. Done.

Our desired asset allocation is simple (more on this below) and—for the time being—our 410(k)s are invested entirely in bond index mutual funds. If this were to change in the future, i.e. we were to invest in stock mutual funds in our 401(k)s, it would only add a modicum of time and complexity to the situation.

Bills: In years past, bills were a mindless time suck for me, a regular thorn in my side. The envelopes would sit in a pile near my front door, mocking me each time I came and left, until I had time to sit down at the computer and silence them.

Now, I automate all the bills I possibly can. Most utilities (curse you, water company. Curse you) can be set up to autopay with credit cards, and the credit cards can be set up to auto-debit from my bank account. I still get notifications when the bills/statements arrive and I glance over them to ensure everything looks kosher.

dog with hat
How much longer do I need to wear this hat?

The semi-automatics


Now would be a good time to briefly mention the asset allocation of my investments—the underlying classes of investments compromising our total portfolio. I use a three-fund portfolio, which I love as much for its simplicity as its effectiveness:

  • 40% total stock market index fund
  • 30% total international stock market index fund
  • 30% total bond market index fund

Some add complexity via small/value tilting their portfolios, or adding real estate in the form of REITs, but I prefer to keep it as simple as possible.

Taxable investments (monthly): In addition to 401(k) contributions, we also make regular monthly contributions to a taxable account at Vanguard—using those sweet, low-cost index mutual funds. Our Vanguard brokerage account is linked to our checking account, so it’s as simple as typing in a number and clicking “buy.”

Each monthly purchase of Vanguard Total Stock Market and Total International Stock Market in these accounts also allows me to easily rebalance toward my desired asset allocation for these funds. Instead of rebalancing by selling one type of taxable investment to buy another (and incurring capital gains tax), I can direct new share purchases toward the mutual funds that have been lagging behind in performance.

Dividend reinvestment (quarterly): The mutual funds we own in taxable accounts distribute quarterly dividends. Dividends can be automatically reinvested, but I choose to have them deposited to a Vanguard money market fund. I can also use this money to help rebalance without selling.

Estimated taxes (quarterly): We aren’t at Scrooge McDuck levels of wealth, but we do well enough to require quarterly prepayments of estimated federal and state taxes. I either write a check (boring) or use a service such as (sexy!) if I want/need to earn some credit card points for travel.

The once-a-years

AVERAGE MONTHLY TIME SPENT: 5 MINUTES (60 minutes once per year)

My wife and I receive variable but usually sizable bonuses at the end of the calendar year, which sets us up for that flurry of investments in the frozen days of early January.

Backdoor Roth IRA: Both of us have fully funded our Roth IRAs in each of the past 6 years using the “Backdoor” method (described detail with luscious screenshots in a recent post by Physician on FIRE). In short, a financial sleight of hand allow those above the income limits for Roth IRA contributions ($199k for married couples in 2018) to still contribute the full $5500 each to their Roth IRAs each year.

529 plans: Let’s not forget the cute little resource parasites that sleep down the hall from us each night. Each January, we lump sum an unconscionable amount of money to pay for the obscene future projected college costs of our sweet baby angels.

The outsourced

AVERAGE MONTHLY TIME SPENT: 10 MINUTES (120 minutes once per year)

I can hear some of you screaming, “What about your freakin’ taxes?!” Confession time: I don’t do my own taxes. But I do sign them. You can read some of my thoughts on outsourcing here, and suffice to say paying a competent CPA to do our taxes has been money well spent.

You cannot fathom the joy it brings me to send off all those tax forms in the mail and—like magic—receive a large packet of completed federal, state, and local taxes in the mail a couple months later. I give them a good once-over to make sure our names are spelled right *wink*, and then put my John Hancock right at the bottom.

gingerbread house

Done and done

If you add up the times above, it’s closer to 45 rather than 60 minutes per month—but who’s counting? I’m certainly not, and that is the point. I spend so little time dealing with my personal finances that it is almost an afterthought, and I can tell you—after a decade of doing it this way—that it works.

How to you handle your personal finances, and how much time do you spend doing it? Are there other facets of my financial life that I should automate? Do you think I spend too little time on my personal finances?

7 Replies to “One Hour per Month, or The Beauty of Financial Automation”

  1. I like your rebalancing technique. I have not done that method before but am now curious to give it a shot. As for taxes, I normally do them myself but this year and going to use a CPA due to slightly higher level of complexity and possibly filing an amended 2016 return.

    1. Thanks DDD, but can’t take any credit for it really. I read about it early on (maybe on the Bogleheads forum) and it made a lot of sense with my situation.

      I really should at least go through the exercise of doing my own taxes one year—for my own knowledge—even if a CPA does it officially. But it’s just SO EASY to send away a big mess of papers and get those crisp, clean electronic documents back. Maybe when I go part-time or retire.

      Glad to hear things are moving forward in your recovery from the fire. Good luck!

      Dr. C

  2. I handle my finances similar to you. Automation is simple and simplicity is beautiful. However, my allocation for bonds is only 10%. I’m pretty aggressive because we are a young family and I feel the overall return/risk ratio is more favorable with more tilt on stocks after reading sites like jlcollinsnh.

    As for taxes, I am fortunate that my mom is a CPA and she does my taxes for me.

    Wanted to ask a few questions:
    Do you tax loss harvest like PoF does? I don’t currently, but I’m considering it.
    If you had a Roth 401(k) option, do you think it’s more advantageous for physicians versus the traditional?

    Thanks for entertaining 🙂

    1. I actually do NOT tax loss harvest…or at least I haven’t yet. It’s more out of laziness than any theoretical objection to the process. Also, most of my investing has happened since 2009, so I haven’t had much of a chance to tax loss harvest in this bull market.

      From my (inexpert) perspective, a Roth 401(k) only makes sense if you believe your income and taxes might be higher in retirement than they are now. For most physicians, this will never be the case. I know WCI has written about this topic, including some situations in which Roth contributions might make sense, so it might be worthwhile googling around his site.

      Having a mom CPA is almost as good as a son doctor 🙂

      Thanks for reading!
      Dr. C

  3. Congrats on reaching this level of simplicity, it’s not as easy to get here as it is to stay here. I call it the maintenance phase of personal finance. Like medicine, it’s front loaded.

    I bet if I died tomorrow, you could do my finances for me. That is how similar mine is to yours. We put 529 and Backdoor Roths in January, automate qualified contribution from paycheck, manually rebalance with contributions in taxable, quarterly dividends into MMA used to rebalance. I have REITS and small value in my Roth and qualified accounts for tilt.

    However, taxes take me about 8 hours a year. I’m an employee but don’t pay quarterly. It just takes that much time a year to gather receipts, save them into my cloud drive, get my charitable in order and file via mail. However, now that we have a Donor Advised Fund and with the new tax laws this might get simpler becuase I’m 99.99% certain I’ll take the standard deduction.

    I also agree with you that once youre in the maintenance phase, most FI stuff out there just isn’t useful anymore. It’s confirmation mostly with an occasional pearl. I have found the more esoteric finance books that I sometimes read now would have me go rogue rather than stay the course. Contrarian for the sake of contrarianism.

    1. Wow, financial samesies!

      Simplicity is (usually) beautiful, but also simple. At the risk of sounding flippant, I know 99% of what I need to know about personal finance. The extra 1% is splitting hairs to gain an extra fraction of a percentage point here or subtract one there; it’s just not worth my time. Some people like to do this as a hobby. I think it’s important to understand basic personal finance, but I have other hobbies.

      I may end up bunching double the charitable contributions every other year to get above the $24k standard deduction those years, and then just taking the standard in the alternate years. I haven’t decided yet. But whatever I do, it will be simple 🙂

      Dr. C

      p.s. Counting down the days to the beach? I am.

      1. You know it brother! Kauai first week of Feb.
        Law of diminishing returns on personal finance knowledge. Fa sho.

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