You may or may not know that February 24-29th is America Saves Week.
America Saves Week began in 2007, and it’s an annual call to action to encourage Americans to commit to saving successfully. Each day of the week has a different theme, such as: saving automatically, saving with a plan, saving to retire, saving by reducing debt, and saving as a family. It’s a great time to check in on your financial health and mindset.
Today I want to focus on saving automatically. Behavioral finance, or the way we think and make decisions about money, suggests that we tend to think of money in separate buckets. For example, the kids’ education bucket, or the family vacation bucket. It’s helpful because it’s a natural way to organize our finances. Sometimes our financial goals can feel like pipe dreams, but if we take simple actions towards achieving those goals, they can seem much more realistic. For example, creating an automatic savings plan into specific accounts designed for specific purposes such as that vacation, an emergency savings fund, etc.
A regular savings and investing plan can help you begin to fill up those buckets, especially if monthly contributions are withdrawn from your bank account. The reason this method is so successful is simple: we usually do things more regularly when they are automatic.
Here are a few examples of how to begin saving and investing automatically:
- Participate in your 401k at work and have the contributions come right out of your paycheck.
- If you don’t have a retirement plan at work, consider making monthly contributions into an IRA, which is an individual retirement account.
- Have a certain amount of money automatically transfer from your checking account to your savings account each month to build up your emergency savings fund.
There are plenty of online tools that will help you figure out exactly how much you need to save, at what rate of return, and for how long in order to reach your goals.
An important thing to remember is that your investments should match your time period for your goal. The closer your goal is, the more conservative you will want to be with your investments. However, if you are saving for a goal that is years away in the future, you may consider taking a bit more risk in order to capture more upside potential.
If you are ready to get started with automatic savings plans, and would like some help getting started, don’t hesitate to reach out to me!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you discuss your specific situation with your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.
Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.