"One word: plastic." In the 1967 film the maturity exam, ben braddock – a fresh college graduate – is looking aimlessly toward his future when a middle-aged family friend gives him this career advice. It did not inspire young benjamin, but it was good advice at the time.
In the same way, i remember early in my career – when i was as young and rootless as benjamin – receiving advice from a mentor that made a significant difference in my life. This simple idea has helped me build up savings and has proven its worth over time. I absolutely swear by it when I talk to friends and family about money.
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For those who are just starting to save, or for those who want to improve their financial situation, this one word is the best advice i can give you: automating. In personal finance lingo, automating means setting up a system where a fixed amount of money is withdrawn from your checking account and deposited into a savings account each month without you having to do anything!
Automating your monthly savings has two big advantages. First, there is no need to write a bank check or transfer money electronically. You don't have to do anything else and even if you have the best intentions, we all have a lot to do and can easily justify why we didn't save anything this month or we keep putting it off. Automated savings take away all of these drops and leave little room for error.
William of ockham, a franciscan and logician of the 14. The 19th-century economist knew this very well when he developed the principle of the occam's razor: the best explanation is the simplest one. Automating your finances is the easiest way to save for the future.
A second big advantage of automating your savings is that no matter what the stock market does, you continue to save in good or bad markets, and are therefore a market diagnostician. Some would-be savers get caught up in such excuses as "the market is too expensive right now, so I'm holding back," or "the stock market is really scary right now, so I'm going to wait." But if you automate your savings, it doesn't matter. Sometimes you will buy into a rising market or a falling market, and over time regular buying will smooth out the ups and downs of the market (in other words, average cost effect).
Here are some ways to automate your savings:
Retirement accounts
Regardless of what you have exactly, retirement accounts are a great way to automate your savings. But before you start, you should first accumulate enough money in an emergency fund that could help you immediately if you lose your job or have an unexpected expense. Once your emergency fund is built up, it is time to focus on the future. Few of us save enough for retirement. As the average life expectancy gets longer, we will need more and more money to get through our golden years.
Setting up a monthly direct debit from your checking account or salary to your retirement account is not difficult. To start, you could set up an automatic amount online. Find out about this from your pension insurance company.
Start with a small amount of money each month. Once you know better, increase the monthly contribution. Do this consistently every month. Over time, you'll be happy when the results add up.
Automate college savings accounts
There are many ways to save for college. The most important point, however, is to do it. Every month, I direct a certain amount of money from my checking account to my children's college plan. The bank takes this amount from my bank account on the payment date, so I know that the money is there. You could, however, have the transfer done on any day of the month that suits you.
College is incredibly expensive and will only cost more in the future. Automating a monthly amount into a college account is like scraping a glacier: it will take time. So get started as soon as possible. Open one now and change the beneficiary to your children when they are born. It is never too early to save!
Mortgage payments, with some extra
If you have a mortgage, chances are good that the amount will already be automatically deducted from your account. Could you, however, add a little extra each month to pay it off faster? There is only so much money, i understand that. However, if you could raise an additional 25 or 50 US dollars per month, it will help you build equity faster and pay off the loan sooner. You will be surprised and grateful for the result. An additional payment per year, spread out monthly, can save you significant interest over the life of a loan.
If real estate agents like to say it's about location, financial planners like to say it's about automating your savings. It makes life easier, you don't have to guess when planning and it adds up over time. There are many ways to save, so it is best to build a hierarchy. This means to start with the emergency fund, in case you have unexpected expenses or if you are laid off.
After that, you could have your savings go into retirement savings automatically. Once you have kids, automate amounts to a college account. If there is money you have left over, you should consider paying a little more towards the monthly repayment of your mortgage. Most of the time, the best advice is the simplest one. I would like to reduce it to one word: automate.
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