5 Ways to Automate Your Savings — a Smart Financial Move
I grew up in Queens, New York. From an early age, I learned a powerful financial principle — and saw that simple concept can make all the difference in lifetime financial success. No matter how much money people were making or what type of job they had, if they automated their savings, they were better off in the long run.
Do Yourself a Favor
I refer to automated savings as “paying yourself first.” It’s a rather basic principle, yet many people don’t realize the power of automation. As a CPA and CFP® Professional, I’ve seen this to be one of the most defining factors in a client’s success. Combine this with living at or below your means and you have a recipe for a strong financial future. Here are five ways to make this the cornerstone of your strategy.
- Go ahead and pay yourself first. You work hard for your money and deserve to invest in your future. Paying yourself first, or automating your savings, ensures you make that happen.
- Let it be out of sight and out of mind. Automation means it just happens, without you needing to remember to transfer or deposit. When money automatically goes to savings, it bypasses you and eliminates any temptation to spend it.
- Learn to live with less. Because you never receive the portion you set aside for savings, you can’t spend it. You then learn to budget within the net amount you deposit to your checking account. You take control by living within your means.
- Reduce your taxable income, in an employer-sponsored savings plan such as a 401(k). Essentially, it will cost you less to save each dollar you contribute to such a plan.
- Deduct your contribution, if you’re using an IRA, instead of a 401(k). Even if you might not see the tax benefit on the front end, the growth might be tax free.
Speak with your advisor to learn the best way to automate your savings to maximize the benefits.
It Doesn’t Matter How Much You Make
As I said, I’ve seen this principle play out time and time again — in the positive and the negative. It doesn’t matter how much money you make or what type of job you have; if you “pay yourself first,” you’re set up for success. If not, you’ve paved a difficult road for yourself. I’ve seen doctors who make hundreds of thousands have nothing to show for it, and middle class, “blue collar” workers who follow this principle become “secret millionaires.”
There’s really no reason not to automate your savings. It’s just a question of how and how much. Once you work that out with your advisor, you’re on the right path.
If you want to make sure your children inherit these same principles, click here to learn more about a Child IRA.