One of the greatest development in terms of productivity and time savings of the 20th century has been automation. Starting with Henry Ford’s car production line and continuing through to the current tech revolution based on increasing processor speed (and efficiency) automation has created wealth and increased the standard of living like no other invention in the history of the world.
We take much of this automation for granted in our daily lives and most of you probably give it little or no thought. However, automation can be one of the keys to unlocking your financial freedom. Taking one quick and easy step can help ensure your financial security far into the future.
Automate Your Savings for Financial Peace of Mind
Automation is happening all around us in finance every day. ATM’s have made it quick and convenient to withdraw, deposit and transfer money. Billions of dollars in currency is shifted globally on a daily basis through the automated forex system, making trade cheaper and more efficient. Financial transactions of all types and sizes whisk effortlessly through automated computer systems making it easy to buy goods and services, pay invoices and bills and collect from your customers.
With all this automation literally at our fingertips it only makes sense to use it to our advantage right? No matter what type of saving strategy you have you can use automation to simplify your savings plans.
If you work for an employer with a 401(k) plan chances are you are already automating some of your savings (you are contributing right?), but there are so many other great ways to automate your finances.
Automatic Emergency Savings
If you haven’t yet set up your emergency funds (both sudden emergency savings as well as longer term emergency savings) then an automatic savings plan is perfect for you. Every bank that I know of allows for automatic withdrawals from your checking or savings account. In most cases you can even set this up online with no need to go to the bank physically. The really nice part is that if you are looking to save $1000 you can set up a $100 per month automatic deduction and after 10 months you are set without ever thinking about it again. Just make sure to set some kind of reminder for yourself at the 10 month mark so you can divert that $100 to another type of automatic savings.
Automate Your IRA
If you are under the age of 50 you are eligible to contribute up to $5000 a year to an IRA (either Roth or traditional). Why not simplify that process by having $416 sent directly from your checking account to your IRA account? Dead simple and guaranteed $5000 a year saved towards your retirement.
Sinking Fund Automation
A sinking fund is used to save for large one off purchases such as a car, vacation or down payment for a house. Because these are large purchases it is important to maintain your saving schedule if you ever hope to reach your goal. And there is no easier way to ensure you stay on track then by automating a set amount directed to these accounts each month. Think how wonderful it will be to know you will have the money for your down payment on x date, because you are automatically pumping money towards that goal each and every month.
Dividend Reinvestment Plans (DRIP’s)
Dividends are a great way to create a passive stream of income as well as minimizing your tax bite. An underutilized feature of many dividend bearing stocks is the automatic reinvestment of dividends, but this feature provides a surefire way to automate your savings and increase your passive income with each passing dividend cycle. While the traditional method for setting up a DRIP requires you to purchase one share of the stock and have the certificate delivered to you (or your account), many brokers now offer synthetic DRIP’s where they take care of all the paperwork and requirements for you. Each broker will have a list of companies available for DRIP investing. The DRIP Wizard lets you search over 800 companies offering DRIP’s.
Those are just 4 ways that you can free your mind and your finances from savings by making it automatic. The benefits are huge; increased savings and investment, peace of mind, time spent more efficiently and perhaps most important no more emotional connection to your monthly savings. Perhaps the #1 reason people fail at saving is that they sabotage themselves. They take their savings money and use it for something else, rationalizing “Oh it’s only $100” or “I’ll catch up next month”. But typically they don’t catch up and those $100 hits can add up to a substantial sum over time.
Are you already automating your savings and in what ways? If you haven’t yet set up an automatic savings plan what is holding you back?