Using Direct Deposit to Reach Your Financial Goals

February 28, 2017

One of the most underutilized techniques for building wealth and achieving financial success is taking control of your direct deposit and other automated transfers. If you work with a full service financial advisor, hopefully they have already set this up for you.  If not, let me share some thoughts that I think will be useful.

Let me start by advising you to never pay for personal expenses out of your practice checking account. Yes, I know your accountant can fix it all later, but it is a mess and more to the point, it muddies the water between your practice and personal finances.

Most doctors take some type of regular salary or draw from their practice. This is usually deposited into a personal checking account, from which any number of expenses are paid. There is a constant battle for those dollars between mortgage payments, student loans, car payments, utilities, entertainment, kids, food, shopping, etc. If anything is left over, it might be transferred to a savings account or put towards a vacation.

There is a better way.

First, make sure you are contributing to your retirement accounts every pay period. Some people like to load these up all at once, but I like doing it every pay period to keep my cash flows even and ensure I am fully funding.

Now, set up your direct deposit to fund several accounts at once:

  1. A checking account used only for student loan payments so you don’t have to see these big withdrawals from your main checking account
  2. A 529 or other account for college savings if applicable
  3. An after tax investment account
  4. Your personal checking account

The beauty of this system is three-fold:

  1. Whatever makes it to your personal account is yours to spend
  2. You are guaranteed to reach your annual goals for debt repayment and savings
  3. If you want to pay down your loans faster, or save more, or spend more, it is easy to make conscious decisions regarding your money by adjusting the amount being deposited into these accounts

Hope this helps!  Send me any questions or thoughts you may have!

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