How To Automate Your Retirement Plan
How do you feel about writing a check for your IRA or 401k contribution? Not great, right? This is why you'll usually never do it.
We have a terrible aversion to delaying gratification and saving money is the ultimate case of either rewarding yourself now or later. Now feels so much better.
I'm right there with you. I'll clutch that money so tightly until my fingers turn white. Saving money instead of spending it is one of the most difficult things we can do as humans.
You know this is true. You've experienced the pain of saving, we all have at some point.
This is why 401k plans have a relatively new feature that helps you get out of pain of making a savings decision, called auto-enrollment. Auto-enrollment "automatically" enrolls you in your retirement plan at work and each month you'll be contributing something around 5% of your paycheck into your 401k plan.
Auto-enrollment has helped millions of Americans save for retirement. It's a great way to put saving on auto-pilot. Here's a few more tips to automate your retirement plan:
Save money everyday
To get better at anything, we need to do it consistently. Losing weight requires eating less and exercising consistently. You can't just skip breakfast and walk to work one day and expect to lose 20 pounds. Every goal takes work. I learned about this strategy a couple years ago and it has put my savings goals on another level. Here's how it works:
Pros do this > Start saving $50 per day. The easy way to automate this is to set up a daily or weekly ACH transfer from your checking account to your savings account or better yet, your brokerage account so the savings can be invested. What's $50 per day? $350 per week and $1,400 per month. Too much? Start by saving $10 per day. It really doesn't matter where you start. It's the consistency that counts.
Every brokerage firm has fantastic ways you can turn your savings into investing. This means the regular deposits you're making from saving money everyday will be invested. Mutual funds have systematic features where you can invest on a regular basis with no transaction charges. You can buy a few shares of stock each month. This type of investing also has the added benefit of dollar cost averaging. Some months you'll be buying a high in the market, but some months you'll be buying a lows. This will average out your cost basis so you're not doing what most individual investors do and buy only at the highs of a market trend.
Pros do this > Set up a mutual fund systematic and turn your money saved into investments. Over time, you'll be increasing your savings not only by the consistent amount you're adding, but through capital appreciation, dividends and interest paid to you by your investments. It's a win win win situation.
Create another stream of income or 7
How many ways do you make money every month? Just from your job? Maybe 2 jobs? Let's get that number up to 7. No, not 7 jobs - 7 streams of income. We can use this well researched habit of millionaires and that is to set up multiple streams of income. If millionaires do it, and it helped them get to be a millionaires, you should probably do it too.
Pros do this > Google "side hustle" or click this link to see 99 Side Hustle Ideas. It doesn't have to be the one big idea that gets you to financial independence. Think of it as a small side business that could bring in a few hundred dollars a month. This extra cash can be stashed away in your investment account or used to build another business or even dare I say, to spend it. Again, it doesn't necessarily matter how much you make on a side hustle, but that you do it consistently.
This is a short list. There are more things you can do, like pay all your bills on time so you're not paying interest on credit cards, etc. Cut down on expenses and such, but saving money is both super important and rewarding. In just 1 year you'll be amazed at how much you've saved and it becomes a habit.
Commit to doing these 3 things this year and 2019 will be your best savings year yet.