Automate Your Investments and Savings
My last article starts to explore the subject of retirement investing, but it barely scratched the surface of the subject. Today I want to show you how to make investing less complicated. Yes, getting educated on all of your options is important. I highly recommend you do take the time to learn more about investing. But I also highly recommend you start investing immediately — even if just a little bit at a time today.
The best way to avoid analysis paralysis – you know, that thing that happens when you go to buy jelly at the grocery store and there are 30 different brands, and you freeze for 5 minutes – is to automatically invest.
When you set up automatic investment you remove your emotions, fears, habits, and forgetfulness from the equation. There’s no thinking involved when the money never hits your bank account — it goes straight to your investment account.
Set Up Automatic Investment
If you have a 401(k) at work and participating, you are already doing this. No one calls you each time you get paid and asks you what mutual funds you want to invest in that week. No, your account is setup to automatically deduct some percentage of your paycheck and invest it to whatever choices you made when you started.
It’s a thing of beauty.
How to Set Up and Automate Your 401(k) Plan
If you don’t have this set up yet, follow these steps and get started today:
- Contact your HR department to see how you can get started.
- Complete the paperwork necessary.
- Allocate a percentage of your paycheck as contributions to your 401(k) plan. At the minimum, you should contribute enough to get the full company matching contribution (your HR department can also tell you what percentage this is). If you can afford to contribution more, check this maximum 401(k) contribution limit chart to determine the percentage.
- Now you have to decide what investments you’ll be buying as money is added to your plan. If you don’t know anything about investing, a safe bet is to put 100% toward a Target Retirement Fund. Otherwise, learn more about asset allocation and select your investments accordingly.
- Monitor your paycheck and 401(k) to make sure everything goes according to plan.
Automating Non-401(k) Investments
The best part is, no matter what account you have: 401(k), Roth 401(k), Roth IRA, 403(b)…all of them have automatic investment options. For IRAs, you won’t always be able to deduct it straight from your paycheck, but you will have the opportunity to automatically take it out of your bank account. Ask you bank or broker about Automatic Investment Plan (AIP) and you should be able to set up something similar to your 401(k) plan.
If you need help with this, just call customer service. They’ll be glad to take your money automatically!
Automation Works Great for Savings, Too
Another great thing to use automation for is saving up for financial goals. It can seem daunting to save up 6 months of expenses into an emergency fund. But if you break that huge goal into a monthly amount over a set period of time, it can be a lot easier to manage.
How to Automate Your Savings
- Ask your employer if they offers direct deposit (it’s better if you can deposit directly to your account without doing anything).
- Deposit your paycheck into your checking account (either direct deposit or manually).
- Automatically transfer some amount per paycheck from your checking to your savings account.
- If you have Capital One 360 you can set up multiple subaccounts (one for each goal) and automatically move your money around.
Plus, you won’t have to think about saving for your goal… it will just happen automatically. That’s the beauty of automation.
Some Tools to Help You Automate Your Savings
Your To Do List
- Start contributing to your 401(k), even if it is a small amount like $20 per month. You can raise the amount you invest over time.
- Do the same for your other investment goals. Most online banks like Capital One 360 will let you set up automatic transfers from another account. Use this tool to save up for future goals without having to worry about remembering to transfer the funds.
I’d love to hear about some success you’ve had with automating your investments and your savings.
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The information on this site is strictly the author's opinion. It does NOT constitute financial, legal, or other advice of any kind. You should consult with a certified adviser for advice to your specific circumstances.
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