Making healthy financial decisions "automatic" is a great strategy for getting ahead.*
*PLEASE NOTE: This information has been provided for educational use only and does not constitute advice or an offer to sellsecurities products or investment advisory services. SEFCU's Institute for Financial Well-Being does not provide legal, tax, or investment advice.
The road to financial trouble is usually paved with our best intentions.
We promise ourselves this will be the year we'll get serious about saving. We'll cut out unnecessary expenses. We won't deviate from our budgetary goals.
Ah, if it were only so easy. While it's great to set goals, it does us little good if we consistently fail to meet them -and missing savings goals is something of an epidemic: According to the Center for Retirement Research, about half of all American workers have virtually nothing put away for retirement.
Fortunately, a process exists that takes the onus for saving and investing off of us and places it somewhere far more reliable --automated saving and investment accounts. These accounts can have a transformative impact on your bottom line if they are set up correctly.
Let's review the basics.
A More Efficient Way To Invest And Save
Automation is, without a doubt, the most efficient way to contribute to your savings and investment accounts. Automatic investment plans allow you to contribute money at regular intervals without lifting a finger. The money can be set up to come directly from your bank account every time you're paid. In essence, you're "paying yourself first" -which is a huge benefit if you're trying to build wealth.
Despite our best intentions, money has a habit of slipping through our fingers. Automation takes willpower entirely out of the equation. Rather than investing whatever happens to be left over once everything else is paid, automated payments are a regular part of the budget. This process creates a reliable, predictable stream of investment contributions. And that, more than anything, is the key to building wealth in the market -especially if you invest that money in something along the lines of low-cost index funds.
Automated savings accounts work on the same principle -and they are every bit as effective in terms of building a nest egg. By diverting a portion of your income into your savings account on a regular basis, you can quickly create a much needed "rainy day fund" for emergencies. Should a major financial setback occur, this sort of nest egg could be a lifeline.
Some people may be concerned about liquidity -locking in a percentage of their income via automation with less flexibility should unforeseen financial needs arise. A few months of following an automated contribution schedule should provide enough of a cushion to assuage such concerns.
The Takeaway
Opting for automated saving and investing is almost always a smart idea. "Pay yourself first" has long been a mantra of financial advisers for a reason -it's simply the best, most efficient way to bolster your finances.
