Savings Auto-Pilot

Imagine it's Payday. We're feeling momentarily rich. It's time for the little things that we have held off on all week. A Starbucks Carmel Macciato at lunch. Friday or Saturday spent doing dinner out and a movie. That quick run to the mall for those shoes you wanted all week.

STOP!!! – So far you have paid Starbucks shareholders, the restaurant owner and his wait staff, Ben Affleck and Steve Madden. Have you paid yourself? Have you put money aside for your rainy day or your future? Ahhh – just as I thought! It's just too tempting with Friday's check making you feel financially invulnerable. It's time to make some simple changes.

Much of the savings that we need to do can be put on auto-pilot. We live in the age of automatic wire transfers or ACH debit/credit transfers. Everything from general savings/investments, to retirement savings, children's education savings and savings for medical needs can be put aside automatically on a schedule you set.

If you have a standing order set up with your financial institution, they will transfer money from your main account – let's say your checking – to other accounts. Let's say that your weekly paycheck is for $500. You deposit that in your checking account and have orders set up to move $75 to your retirement account (maybe a Roth IRA), $50 to your savings account, $50 to your kids' education (possibly a Section 529 Plan) and another $25 to a Health Savings Account. At the end of the year, you would have $3,900 in retirement, $2,600 in savings towards your next car, $2,600 for education and another $1,300 for medical needs. You never once had to decide if this was a good week to save. It's automatic.

The best part is that by knowing that you really only have $300 to spend ($500 paycheck less $200 in forced savings), you will spend less. You won't fool yourself into feeling richer than you are and making purchases that you probably shouldn't.

If that isn't enough, many people forget one thing: good decisions (or bad ones) can have cumulative effects. Above we described a scenario with a person saving a total of $10,400 from $26,000 in take-home pay. What is the impact in five years if we keep that up? $52,000. It adds up quick.

If you are your own worst enemy when it comes to your finances, take the decisions out of your hands and put your savings on auto-pilot! Talk to your bank or investment brokerage to see what options they have available.

These ideas just scratch the surface of automating your savings. If you have a question, there is probably another reader/subscriber wondering the same thing. Please post your question using the comments section, below this post. I will be happy to go into greater detail in any area that seems to be of interest to all.