Do It For Me is the new Do It Yourself: Why Automation beats Empowerment


By any statistic, Americans are terrible with money. Even people making six-figure salaries regularly live paycheck to paycheck

So, why is it so damn hard to be good with money?

It’s not your fault. We’re all born with cognitive biases that make it difficult to manage our money well. Things like Time Disounting, Planning Falacy, and Restraint Bias cause us to overspend and get into debt.

So, what’s the answer?

The financial services industry and self-help gurus think it’s Empowerment. They want to empower you with advice to choose your savings goals, charts to track your spending, and tools to create budgets. 

But there’s a reason why this approach doesn’t work (and why nearly 80% of Americans live paycheck to paycheck): The “empowerment” approach requires effort, and a lot of it.

Do you want to spend a Sunday afternoon creating a budget? Calculating what you’ll need to retire on? Reading about the differences between an Traditional IRA and a Roth IRA? Evaluating mutual funds? About 80% of you just thought, “nope”. The other 20% of you can stop reading this article now, as you’re probably going to disagree with everything I have to say.

Plenty of research has been done on how people actually behave versus how they think they behave. To put it bluntly, we’re lazy and bad at planning for the future. That’s not because we’re bad people, it’s simply how we’ve evolved. We’re lazy to conserve energy and we’re bad at planning for the future because we need to focus on the present. This behavior of conserving energy and focusing on the present is what allowed our cavemen forebears to stay alive when food was scarce, but they royally mess up our ability to save up for an emergency fund.

Now, let’s talk about apps and other software. The app store is littered with apps that claim how easy it is to create a budget or savings plan or investment plan. These apps place the burden of setup on you, the user. Do you know how much you want to save? How much you can spend on debt reduction per month? How much you’ll need to retire on? Do you even want to know that number, or does that freak you out? 

Here’s the deal: Every time an app requires a user to fill in a blank or make a decision, it slows down the user who may not know the answer. The fear of “doing it wrong” when it comes to money is so great that many people end up putting such tasks off until they learn the answers. Some end up never returning at all. And due to how interest works, time is the great multiplier when it comes to money. This is why it’s far better to get started with a “good enough” plan today than with a perfect plan tomorrow (and we all know tomorrow will stretch into tomorrow night, or this weekend, or next month, or…).

So, what’s the answer? Automatic Financial Advancement. This is what Version 3 of The System will do, and it’s crazy that it doesn’t exist yet. But what is it?

Financial Advancement is moving up the ladder from being in-debt to being on track for retirement. Automatic Financial Advancement (AFA) is a service that automates this process.

At the heart of AFA is a sequence of financial goals that have the best practices of Personal Finance baked into them. These goals are paid for by a set percentage of your take-home pay based on your Bills-to-Income ratio, typically between 10%—20% of your paycheck. That amount is applied to the following goals in the following order. When one goal is accomplished, the service automatically moves on to the next goal.

  1. First, it pays off your smallest credit card debt. We start with the smallest debt instead of the one with the highest interest rate because of the psychological win you get from eliminating one of possibly many debts. This is called the Debt Snowball approach.

  2. The service then pays off your next smallest credit card debt and so on until it’s all paid off.

  3. Next, it opens and contributes to a no-minimum Roth IRA until it’s maxed-out for the year. The Roth IRA is invested it in an age-appropriate Target Date Fund made up of index funds, like Vanguard’s Target Retirement Funds of the Fidelity Freedom Index Fund. Note: Because you can withdraw your Roth IRA contributions with no penalty, this account can double as an Emergency Fund.

  4. Next, it completes your Emergency Fund by (1) calculating the bare minimum amount of money you’d need to survive 6 months, then (2) subtracting the balance of your Roth IRA. It takes the difference and saves it to a new, separate savings account that acts as your Supplemental Emergency Fund.

  5. Finally, it opens and contributes to a taxable brokerage fund that’s invested in an age-appropriate Target Date Fund made of Index Funds, like those listed above.

Note: Before any of this, it will nudge you to first contribute the company match of your 401(k) if applicable. Once your credit cards are paid off, it will nudge you to max out the 401(k) entirely.

Take a moment and appreciate all the automatic calculations occurring here. The System already knows your income, pay schedule, bills, and bill schedule. From that it can calculate your Bills-to-Income ratio and thus your contribution amount. It can calculate your 6-Month Emergency Fund. It can also keep track of when your Emergency Fund is complete and when your Roth IRA is maxed-out. Importantly, it can also adjust your contribution amounts as your income and bills change.

Now, think about the people in your life who you've nagged to get their financial act together—perhaps a spouse, a parent, a sibling, a partner, a child, or a friend. Next, imagine if they had this service. Their path from debtor to investor would be automated. Wouldn’t that be nice?

Matthew Sallin