The biggest reason anyone fails at their finances is because they never really start. Sure, they may get through a few weeks. But then it falls off. We lead busy lives and sometimes we let things slide. So it becomes tomorrow’s problem.
It happens with exercising, dieting, curbed spending, and how we save. It’s something that we have all done at some point and it’s a weakness everyone deals with at some point in their lives.
So, instead of trying harder next time, lets take advantage of what’s available, to do the work for us now.
An automatic saving plan will successfully end all the worry and procrastination we have with our finances and force habit change. Let’s work smarter and start automating our savings.
The Automatic Saving Plan
Most people get paid by direct deposit and it happens on a regular schedule. Either once a month, twice a month or every two weeks tend to be the norm. Since you know when you get paid, there is your timeline to set up an automatic saving plan.
First off I’ll start by saying the plan is FREE. That is, until banks figure out just how much people will pay for the convenience.
Any good bank allows automatic transfers and if your employer offers a retirement plan, those deposits are built-in automatic saving also. All we need to do is set up everything so it coincides with when you get paid. By doing that you skip any chance of getting hit with a fee.
Set up all the automatic saving deposits to go through a few days after you get paid. Leave enough leeway to deal with holidays, weekends, or a late paycheck.
Checking Account
It’s start at the payment center. All your paychecks and other money gets directly deposited in the checking account. The reason is simple. So you get used to only spending what we have in this account. There is no cheating with savings account withdrawals to buy a new pair of shoes. Any money going out of this account is on a one way trip to somewhere else.
The checking account pays the bills, the groceries, and the savings, retirement, and brokerage accounts. If you have the habit of taking money out of those accounts to spend it, leave a little cushion in your checking account. We want to break those withdrawal habits. As far as we’re concerned, the only spending money you have is in the checking account.
Savings Account
If you don’t have a savings account with your current bank, you can set one up one. Some people choose to open an savings account at another bank just to make it harder to spend that money.
This account consists of rainy day funds, emergency funds, vacation money and any other savings goals. You shouldn’t have to open a different account for each goal, but you can if it helps to keep it all separate and organized. You can even open a CD for longer term goals.
Once again any money in your savings account is only used for the goal you set for it.
Retirement Accounts
Notice that retirement accounts is plural. This includes your work retirement account, like a 401k plan, and any IRAs.
Your work retirement account should be set up to automatically withdraw money from your paycheck. If it’s not, talk to human resources and fill out the paperwork. The bare minimum amount should equal any company match. Saving more is better. Set it as a percentage of your income, like 15%. Now, any pay increases will automatically boost your retirement savings with every raise. And you’ll never have mess with paperwork again.
Any IRAs you have should be set up for automatic saving too. If you’re not already making contributions, it only takes a minute to open an IRA. You’ll need to set up your IRA for regular electronic (ACH) transfers and connect it to your checking account. Your scheduled IRA deposits will depend on your payday and bill payment dates. So, setup your IRA deposits around those dates but make sure it won’t empty your checking account in the process. Your IRA provider should give you enough options to fit any scheduling needs.
If you need to set up an electronic (ACH) transfer, have your checking account information handy. When I set mine up several years ago, it took a couple of minutes and was approved in a couple of days. It makes depositing money easier and you will never have to set it up again.
Brokerage Account
You can funnel whatever is left over into a brokerage account. This only works if you can’t put any more money into your retirement accounts and you can handle the investment risk.
You can use any brokerage account to automatically pull money from your checking account. I prefer TD Ameritrade myself.
If your income allows for it and your savings account goals are maxed out, you can set regular deposits for this account too. You will set it up just like the IRA deposits, through an electronic (ACH) transfer which will connect to your checking account.
Your Savings Are Automatic
Once you have it all setup, your automatic saving plan will run like clockwork. Making adjustments will be effortless and there will be no more worrying whether you saved enough for that winter vacation. On top of that you can convert the process to automate your expenses as well. Set up your mortgage, car, credit card, and utility bills for automatic payment and simply your life.
Stop making your savings tomorrow’s problem, start your automatic saving today.
Image: Flickr – GuySie
