Making Saving Automatic
We all know that we should save, but more than half the population never does. Here are some tips to automate your savings.
Enroll In Your Employer’s 401K Plan
Enrolling in your employer’s 401K Plan is perhaps the easiest way to automate savings. If you’ve not paid attention to retirement in the past, you may find that you have already been contributing 3% of your paycheck to your employer’s plan, as employers are required to auto-enroll employees upon hire. Talk to your employer and see if you already have an account.
Many employers have a matching program, meaning they will match your investment up to a certain point. For example, if they match “up to 6%” of your salary at 100%, and you make $45,000/year, you can contribute $2700 (6% of $45,000) and they’ll contribute a matching $2700. That means, $5400 will be contributed to your account (your $2700 and your employer’s $2700) during one year. 401K contributions are pre-tax, as well, meaning it won’t cost you $2700 to contribute $2700. Depending on your tax bracket, it may cost you 15-25% less.
If you suffer a financial hardship, you are eligible to borrow up from your 401K (for most plans, up to 50%) without paying a tax penalty. When you consider the tax savings and the contribution from your employer, investing in a 401K is one of the best ways to automate your savings.
Direct Deposit 10% To Savings
One way to build up a savings account is to set up an automated direct deposit from your paycheck to a savings account. This way, you won’t have to think about setting money aside each month. Essentially, you’ll be paying your savings account at the same time that you get paid. This is known as “paying yourself first,” setting aside savings before you pay your bills and pay for discretionary items.
Why 10%? This is the amount experts recommend so that you’ll have enough money, over time, to retire. If 10% is too much for you right now, consider 5%. Even 3% will add up to a healthy emergency fund over time.
Direct Deposit Money To An Investment Account
Another way to automate savings is to have a portion of your paycheck direct deposited to an investment account such as Scottrade or Charles Schwab, where you can invest in mutual funds. Choose a fund that is well-established, with a good rating, and a good rate of return over the past 10-15 years.
About The Author
In his 40-plus-year newspaper career, George Morris has written about just about everything -- Super Bowls, evangelists, World War II veterans and ordinary people with extraordinary tales. His work has received multiple honors from the Society of Professional Journalists, the Louisiana-Mississippi Associated Press and the Louisiana Press Association. He avoids debt when he can and pays it off quickly when he can't, and he's only too happy to suggest how you might do the same.