When we think of growing our wealth, we too often focus on active actions we can take. While actively growing your wealth is a good activity to pursue, you might be surprised at how you can automate your finances and meet your financial goals without a whole lot of thought.
Automating your finances can go a long way toward helping you boost your financial situation without the need for a lot of fiddling around. Here are some of the actions you can take to build your wealth without thinking about it.
1. Start with Your Paycheck
One of the easiest ways to automatically build wealth is to contribute to your retirement portfolio through payroll deductions. Opt-in to your company’s retirement plan. A portion of each paycheck will go into a tax-advantaged retirement account designed to help you grow your wealth. If your company offers a match, do what you can to get the maximum match.What if your company doesn’t offer a retirement plan? In that case, you can still deduct money from your paycheck. You just need to send it to an IRA that you open on your own. Most companies will send a portion of your paycheck to an outside retirement account if they don’t provide a plan.With money coming out of your paycheck, you don’t even have to think about what to do with it. Investing automatically each month will grow your investment portfolio. And since you don’t see it each month, you won’t even miss it.How much should you invest? Start with investing up to the company match in your 401k. If you can afford to, you should also try to max out your IRA each year. You can contribute up to $6,000 to an IRA in 2019, which comes out to $500 per month.
2. Set up Automatic Increases
Some companies allow their employees to automatically increase their 401k contributions each year. See if you have the option to increase your retirement account contribution by 1% every year. This small increase won’t be too noticeable in your paycheck, but it can make a big difference over time. Creating a system that allows you to boost your savings each year without the need to consciously make changes is a great way to build wealth.
3. Use Automatic Transfers
Once you have your paycheck squared away, it’s time to look for other ways to automate your wealth-building capabilities. Set up different investment and savings accounts for various goals. Then use automatic transfers and investment plans to create a system where you’re saving without thinking about it. If you’re growing a home down payment fund, for example, open a high yield account and then set up an automatic transfer from your checking account on the same day each month. That way, you’ll work toward your goal without the need to think about transferring the money. This approach works for adding an IRA, HSA or taxable investment account to the mix. Think about your goals, and where you can put your money so that it begins working on your behalf. With automatic transfers, you’re always moving toward your goals — even if you’re not actively initiating the transfers on your own.
4. Review Your Finances Regularly
Even when you’re automating, it’s important to review the situation on a regular basis. Make sure your automatic transfers are adequate to meet your goals. See if you need to tweak some of your amounts. Consider increasing your automatic contributions as your financial situation improves (paying off debt, making more money). Make it a practice to consciously handle any financial windfalls you receive. For example, you could make it a practice to automatically put 50% of it toward your financial goals. Use the other 50% for something else if you want. But you’ll be better off if you get in the habit of putting a large chunk of unexpected money toward your long-term goals.
5. Personal Finance Software Can Help You Keep Track
It’s important to stay on top of your finances when you automate them. Personal finance software can help you stay organized. Some software makes it possible to schedule transactions ahead of time so you can see where you stand. Using software that recognizes recurring transactions can remind you that the retirement fund or travel fund contribution is coming out and you can’t spend that money on dinner and a movie. Monitoring your finances helps prevent a mortgage payment or some other expense from triggering an overdraft. Examine your cash flow to see when you have income — and when bills are taken out. Stagger your automatic transfers so that they fit well with the rest of your cash flow economy.
Bottom Line – You CAN Automate Your Way to Wealth.
When we think too much about what it takes to build wealth, it’s easy to become paralyzed — and never do anything. However, setting aside money in retirement and savings accounts is one of the best ways to build wealth over the long term, and that can be automated.
Look for ways to automatically move your money around. Whether you have it withheld from your paycheck so you never see it, or whether you make it a point to set up automatic transfers from your checking account, automating your finances can make a huge difference in how much money you end up with.