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Capitalize on the Advantages of Direct Deposit

Capitalize on the Advantages of Direct Deposit

How can you take the ease of saving in your 401(k) and save for your other goals?

The answer is through direct deposit.  Direct deposit is a slick way to save for multiple goals effortlessly. Instead of receiving a check that you have to bring to the bank to deposit, your check is automatically and directly deposited into a bank or investment account for you, and you get a printed pay voucher showing how much you earned, how much was taken out in taxes, etc.  

If you work for a company that offers direct depositmost companies do today—it saves you from having to go to the bank and more! You have complete control over how your paycheck is allocated. You can have a percentage of your paycheck directly deposited into one or more accounts automatically. It’s your money. You get to decide where it goes and how much goes to each account.  

Not for the faint of heart…

This strategy works best if your finances are in complete disarray and you’re spending too much on your credit cards every month. Drastic situations require drastic actions.

For individuals without a bank account, the larger payroll processing companies will direct deposit to a debit card. Even though you have a bank account you can use this strategy. Tell your HR department to transfer what you need to pay your bills to your checking account and transfer only what you’ve allocated to credit card spending to the debit card.  

For example, if you calculated that you can only spend $400 on clothes, entertainment, and dining out per month, you could have $400 (or $200 if you get paid twice a month) directly deposited on your debit card. When you run out of money on your debit card, you must stop spending. This automatically prevents you from spending too much. Of course, this only works if you cut up your credit cards!

You might be thinking, “Big deal.  I can have my paycheck deposited into different bank or investment accounts.  How does this help me achieve my goals?”  The purpose of this lesson is to show you how to achieve your goals by putting your savings plan on autopilot. The basket approach to saving aligns your hard work and salary with a purpose—your goals. Direct deposit is a tool that makes it effortless to save for each of your goals in a way that seems natural and intuitive.

Here’s how you can direct deposit your way to wealth and success in the real world. 

You’ve already done all of the hard work in the last section.  You should have clear picture of your cash flow — what’s coming in and what’s going out to meet your expenses and to accomplish your goals. Every dollar that comes in the door has a purpose. The purpose might be to pay a bill or to reach a goal. Add up all of your expenses. This amount should be direct deposited into a checking account since you will need quick access to the cash.  

What about your goals? For each of your goals, create a new savings or investment account. Yes, that’s right. For every goal that requires you to save money you will open investment account. If you have six financial goals, you should have six separate accounts. You might be thinking, “This sounds more complicated and time-consuming than what I’m doing now!” If you give it a chance, you will find it is actually less complicated and a much more efficient use of your time than the traditional way of saving.

You’ve already calculated how much you need to save per month to achieve each of your goals, so now you can have that amount of your paycheck directly deposited for each goal.  

For example, let’s say after taxes and after contributing to her 401(k) account, Lisa takes home $3,000 a month.  Here’s what she found about her expenses and the cost to fund goals:

Monthly Cash Outflows Dollar Amount % of Take-Home Pay


Regularly occurring expenses: $1,525  (51%)

Occasional expenses: $525 (18%)

Direct deposit to checking: $2,050 (69%)


Emergency reserve: $0 (already has enough in emergency account)

Retirement/Financial Independence $300 (10%)

(outside of 401(k))

Accounting class tuition: $150 (5%)

French language class/trip: $125 (4%)

Caribbean cruise $360 (12%)

Direct deposit to savings accounts: $935 (31%)

Lisa first had to calculate how much she needed to direct deposit into her checking account. Based on her monthly recurring expenses and more infrequent but predictable expenses, Lisa determined she needs to direct deposit $2,050 into her checking account.  

Lisa knows that just paying her bills is like treading water. If she wants to get closer to reaching her goals she will have to save every month. Lisa has four goals: 

  • a fun retirement
  • an accounting class she’d like to take eight months from now that will cost $1,200 ($150 per month x 8 months)
  • a French language class in France she’d like to attend in three years that will cost $4,500 ($125 per month x 36 months)
  • a Caribbean cruise she wants to take with her boyfriend in a year that will cost $4,320 ($360 per month x 12 months).

Because she has four distinct goals, she needs four baskets—one for each goal. Of course, instead of a basket, Lisa is going to create four investment accounts. As long as Lisa doesn’t lose her job (but if she does, her emergency reserve fund will help see her through such a problem) or change the direct deposit amount into each account, she will reach all of her goals effortlessly. Once the direct deposit accounts are set up and Lisa tells them how much to deposit into each account. Her savings plan is on autopilot; she can forget about it.

Now it’s your turn!  Complete the worksheet below:

Monthly Cash Outflows Dollar Amount % of Take Home Pay


Regularly occurring expenses: $__________     _____%

Occasional expenses: $__________     _____%

Direct deposit to checking: $__________     _____%


Emergency reserve: $__________      _____%

Retirement/Financial Independence $__________      _____%

Goal #1: ___________________ $__________      _____%

Goal #2: ___________________ $__________     _____%

Goal #3: ___________________ $__________     _____%

Goal #4: ___________________ $__________     _____%

Goal #5: ___________________ $__________     _____%

Goal #6: ___________________ $__________     _____%

Goal #7: ___________________ $__________     _____%

Direct deposit to savings accounts: $amounts above _____%

Once you know exactly how your paycheck should be divided, you can open investment accounts for each goal. Make sure they don’t charge you any fees to open an account or high ongoing account fees. There are plenty of firms happy to work with you. If your brokerage firm gives you an attitude about opening so many accounts, open an account somewhere else. Remember, your goal is to reach your goals. Don’t let a stodgy and uncreative firm get in your way!

Once you’ve opened the investment accounts, contact the human resources department at your work and tell them how you’d like your check split between the various accounts. After the accounts are set up and you have money flowing into them from each paycheck, you’re done!

The proceeding blog post is an excerpt from The Six-Day Financial Makeover: Transform Your Financial Life in Less Than a Week!, available now on Amazon.




About the Independent Financial Advisor

Robert Pagliarini, PhD, CFP®, EA has helped clients across the United States manage, grow, and preserve their wealth for the past 25 years. His goal is to provide comprehensive financial, investment, and tax advice in a way that was honest and ethical. In addition, he is a CFP® Board Ambassador, one of only 50 in the country, and a real fiduciary. In his spare time, he writes personal finance books, finance articles for Forbes and develops email and video financial courses to help educate others. With decades of experience as a financial advisor, the media often calls on him for his expertise. Contact Robert today to learn more about his financial planning services.

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