Everyone is losing their minds about AI.
Y Combinator’s current class is filled with AI startups, Morgan Stanley is integrating ChatGPT into its entire wealth business, and thousands of small companies like mine are figuring out how best to leverage the tech.
There is AI for everything.
AI has changed the world already, and it’s just getting started.
But before AI, there was automation.
When people figured out how to grow more food than their family could eat, the cascading effect was large-scale economic, social, religious, and political progress.
People had more time to build stuff and, in doing so, discovered the wonders of automation.
Human life changed forever.
While the world wonders about AI’s possibilities, its predecessor is still massively underutilized in the financial lives of many Americans.
That is automating financial lives.
Before I explain why this mathematically works so well as we invest, let’s look at where money is already automated—you’ll notice an interesting trend.
First, paychecks—it’s not even a question anymore when people get paid. Knowing a year in advance when the cash will hit checking accounts is possible. If you are retired and receiving Social Security, you know when for the rest of your life.
It’s automated.
Second, mortgage payments—banks make us set up ACH mortgage payments in return for the money to buy homes. This ensures they get paid and people don’t fall behind on payments.
It’s automated.
Third, health insurance—people automatically pay health insurance premiums every month. Why? The risk of not paying, lapsing, and getting into an accident that ends up costing $200k is not worth it.
It’s automated.
Fourth—taxes—when you buy a Snickers bar, sales tax is automatically taken out. When you make W2 income, taxes come out automatically—before they’re due. When you stay at a hotel in Florida, sales tax is automatically taken out.
It was, again, automated.
The trend here is that the essential things in life are already automated, most of which are from people who take your money.
Taxes, housing, and insurance.
Coincidence?
No.
Automating your financial life is one of the easiest, fastest ways to ensure success.
When you decrease the time between earning money (job income, dividend income, etc) and investing, you exponentially increase your net worth in the years to come.
Let that sink in for a second.
When people don’t automate their financial lives, they either spend all their money (this is what most people do; check out any large data set) or miss market gains by not investing.
Both bad.
Here’s an example to reinforce this point – You save $1,000 per month into a savings account and have done so for three years, and you are sitting on $36k in cash, earning 2%. Over this time, the market has averaged 8% per year returns. You’d have $3,466 more had you invested. Not that much, honestly. Let’s go further. You leave the strategy as is, and five more years go by, and the spread grows to $10,432, still small. But when we zoom out further, compound interest starts to take over, 15 years at the spread is $136,383.
The longer you go, the exponentially bigger the spread becomes.
What is the moral of this story?
Automate, ruthlessly – in your favor.
Ensure you have automated every investment account to utilize your time fully.
You can’t manufacture more time for your investments to grow, but you can use time better.
And when you use time better, your money is invested longer, it grows faster, and you can retire earlier.
I can’t wait for what the future brings with AI, but what is more impressive is the magic of compound interest and what it does to money over the long term.
In summary.
- Automate your money.
