There are so many articles advising you to save more for retirement, for your emergency savings fund, children’s college education and much more. But how do you fulfill all these financial goals without driving yourself crazy? Believe it or not, there is an easy answer, make it automatic. The key is to take a few minutes to set it up and then your savings are on autopilot. You will end up saving more money without thinking about it.
The first place to start is with your savings account. You can have one savings account that serves many purposes, but some people function better with separate savings account. For example, you can have separate accounts for saving for a down payment, for an upcoming vacation and for holiday’s gifts. Open a savings account that is linked to your checking account. Ideally, pick a savings account that is not at your bank because the money is harder to get to and you will not touch it as easily. Check out www.ingdirect.com or www.bankrate.com for savings accounts that have higher interest rates than most banks. Once that savings account is linked to your checking account, setup an automatic deduction from your checking account to your savings account. Push yourself and contribute a bit more than you think you can afford. You won’t miss it!
The next step in your automatic financial makeover is to pay your bills online. If you aren’t doing this already, this can save you so much time in your regular financial duties. You should try and do this through your bank so you won’t pay any extra fees. Once you have all the vendors and account numbers setup, paying your bills should only take you 10 minutes at a time. You’ll never pay late fees again!
Another place to save huge amounts of money is by paying your mortgage automatically every month and adding a bit more to your payments. For example, if your monthly payment is $1,600, round it up to either $1,800 or $2,000 a month. By adding a little amount to your mortgage monthly or annually, you are able to save a tremendous amount of interest over the life of the loan and shorten the term of the loan as well. If you can’t afford to add an extra amount, then check to see if your mortgage lender will let you pay bi-monthly.
Your 401(k) and IRA savings round up your automatic financial makeover. While the 401(k) is already automatic, contribute at least 1% more than you are currently saving if you aren’t already maximizing your automatic contributions. You will not miss this small increase. You can do this with your ROTH or Traditional IRA as well. Most mutual fund companies will let you setup automatic contributions to their mutual funds for as little as $50 or $100 a month.
All these examples show that setting up automatic savings is the best way to build your savings. And it is done in your sleep. Anyone can afford it!
(Copyright Down-to-Earth Finance LLC 2007)