After my divorce from the gambling husband and after I paid the outrageous tax bills, my nest egg was almost depleted. But I had a few properties that paid rent every month.
One of the first things I did, when that rent came in, before I spent a cent, I immediately put a portion of it into savings. Otherwise, I knew I’d spend it all.
And I did it automatically. It was so simple. I filled out a form and the bank automatically transferred money from my checking account to savings. The amount was small at first, but it added up quickly. I didn’t even have to think about it.
Automating gave me discipline without having to work at it. It’s easy to say that you’ll move money monthly into savings. In practice, however, it just doesn’t happen. You forget. You overspend, You have a hundred excuses.
But by automating, you don’t miss what you don’t see. This was the beginning of my creating really good financial habits—habits I still practice today.
Later, as my savings accumulated, I automated my investing which took the emotion out of the equation. It’s called Dollar Cost Averaging. Whether the market went up or down, I kept buying.
Investing automatically reduces the risk of losing a large lump sum in a bad market. And reduces costs because you purchase fewer shares when stocks are expensive and more when they’re cheaper.
If you have a 401K, your employer will transfer a specific amount from your paycheck to the 401(k) or 403(b).
If you have a personal IRA or investments outside retirement, say through, Schwab, Vanguard, Fidelity or Betterment, you can have money automatically transferred from your checking account to those investment accounts.
If you’ve got more than one savings goal—say, building your emergency fund, buying a house and taking a vacation, you can set up more than one savings account.
I always recommend having at least 2 types of savings. An Untouchable account for emergencies only. And a Touchable for fun stuff and daily expenses.
If you’re following a budget, treat the savings as an automated, regular “expense.”
What’s worked for you to make savings and/or investing automatic? Leave me a comment below.