How to Automate Your Savings and Investment Contributions

Let's be honest, sometimes the biggest hurdle to building wealth isn’t a lack of understanding, it's consistency. Trying to remember to transfer money to your savings account or execute a specific investment order every month can be a real struggle. Life gets busy, and those small, regular contributions quickly add up. Fortunately, there are plenty of ways to automate your savings and investment contributions, making the process far more consistent and less reliant on willpower.

Why Automate?

Consistency is Key: Regular, small contributions are far more effective than infrequent, large ones.
Eliminates Emotional Decisions: Automation removes the temptation to panic sell during market downturns or make impulsive purchases.
Takes the Effort Out: Once set up, it's largely "set and forget."
Compound Interest Magic: Consistent contributions lead to exponential growth over time due to the power of compounding.

Methods for Automating Your Savings & Investments (October 31, 2020)

Here are several ways to automate your finances:

1. Direct Debits from Your Bank Account:

Savings Accounts: This is the simplest method. Schedule a recurring transfer from your checking or savings account to your savings account. Many banks allow you to set up these transfers online. Aim for a small, manageable amount – even $25 or$ 50 per month can make a difference.
Investing Accounts: Some brokers, like Fidelity, Schwab, and Vanguard, allow you to schedule recurring investments directly from your bank account. You can pre-select the investment (e.g., a specific ETF or mutual fund) and the dollar amount.

2. Robo-Advisors:

What they are: Robo-advisors are online platforms that use algorithms to build and manage investment portfolios for you.
How they automate: They automatically invest a set amount of money into a diversified portfolio based on your risk tolerance and financial goals.
Popular Choices: Betterment, Wealthfront, and Acorns are well-known robo-advisors. They charge fees (usually a percentage of assets under management), but the convenience and automated nature are often worth it.

3. Recurring Transfers through Apps:

Acorns: Acorns rounds up your everyday purchases to the nearest dollar and invests the spare change. It's a fantastic way to passively invest without much effort.
Digit: Digit analyzes your spending patterns and automatically transfers small amounts of money from your checking account to a savings account when it detects you’re spending less than usual.
Qadi: Similar to Digit, Qadi analyzes your spending and identifies surplus funds to automatically save.

4. Payroll Deduction (if available):

If your employer offers a payroll savings plan, take advantage of it! This is a convenient way to automatically set aside a portion of your paycheck for savings or retirement accounts.

Setting It Up: Step-by-Step

Define Your Goals: What are you saving for? (Emergency fund, down payment, retirement, etc.)
Calculate Your Contribution Amount: Start small and gradually increase it as your income grows.
Choose Your Method: Select the approach that best fits your financial situation and preferences.
Set Up Recurring Transfers: Follow the instructions for your chosen method – direct debit, robo-advisor, or app.
Monitor and Adjust: Regularly review your automated contributions and adjust them as needed based on your goals and circumstances.

Resources to Explore:

Don’t let the lack of discipline hold you back from building your financial future. Automation is a powerful tool that can make saving and investing effortless. Start today!