This is another installment in our Financial Independence Series- a series of articles complete with advice and strategies that most anyone can implement right now to help move closer to financial independence. Be sure to read the other entries in this series and start saving today!
Achieving financial independence is a great feeling. And in spite of what many may tell you, it’s not something out of reach. Most any family can start down the path of financial independence and while the momentum might be slow at first, it will pick up pace over the years and the goal will become more clearly in view as time passes. One way to help reach this goal is through automatic savings and/or investments.
What, exactly, is an automatic savings? Well, it’s exactly what it sounds like and it’s something many people are already doing through their company sponsored 401k savings plan. An automatic savings/investment is simply the automatic transfer of money to an investment account each month on a defined date. The automatic investment can be a dollar value investment or a percentage of income investment. As long as it takes place automatically, without any initiative from the investor, it qualifies as an automatic savings.
Establishing an Auto Savings
Most of us are already familiar with the automatic savings offered via our 401k deduction, but many are not aware that an automatic savings can be established for many types of investments. Your bank savings is one good example. Unless your bank is truly operating in the dark ages, it most certainly offers this feature. You, the investor, simply state an amount of money you would like to invest and on what date each month you want the transfer to take place. The money is automatically transferred from your checking account to your savings account each month, on the date you select. Mutual funds, IRAs, and most any other investment account offer similar plans. It’s in the best interest of the investment company to offer these plans and that is why so many of them do.
Auto Savings vs. Ordinary Savings
Many of you are probably wondering what the value is of an automatic investment account. If you simply remember to invest your money each month, when you choose, then wouldn’t the same goals be achieved? Can’t a person win the financial independence game without an automatic investment?
The simple answer to this question is yes, you can achieve your financial goals without automatic investments. But the reason these auto savings methods are so valuable is because they are far better at ensuring that the savings really does take place. We have been using automatic savings and investment accounts at Money Saving Parent for years and I can tell you that they do, indeed, make a big difference! There is no doubt that our automatic investments have had a major impact on our household savings and net worth.
The reason this method is better is because, with an automatic savings account, you tend to treat the money you place into these accounts as part of your monthly budget. That is, you, the saver, are very likely to treat your $100 monthly transfer on the 20th of each month about the same way you would treat your $100 insurance payment, utility bill payment, credit card payment, etc. In other words, when it happens automatically, it becomes a monthly obligation similar to paying a monthly expense or debt. You start to recognize your investment as something you have to pay each month, much like you have to pay your phone bill each month. And with the money auto transferred on the same day each month, you don’t need to remember to do it. The transfer takes place automatically, without any additional work on your end.
Financial Independence the Automatic Way
Achieving financial independence isn’t easy. It requires formulating a plan and sticking with the plan. It requires time and patience. It can be slow- going at first, too, and the lack of much progress early on can lead some people to grow discouraged. But with automatic savings/investment plans in place, savings is more likely to happen, wealth is more likely to build, and financial goals are more likely to be reached. Even if you start out small, an automatic savings account is bound to make a difference in the long run so establish your auto savings and start making progress toward financial independence today.
Other entries in this series:
Copyright 2014, Bryan Carey