My wife is always shocked when I show her how much she’s saved in her 401K.
“I have how much??”
As I’ve become more immersed in the world of personal finance, I also took the liberty of managing my wife’s 401K contribution. Like any good husband should 🙂
I’ve also automated her contribution so it’s no longer something we have to think about.
It’s easy to talk about the importance of saving. However the best system that is guaranteed to work is the one where you don’t have to think about.
The amazing thing about having savings be automatically deducted from your paycheck is that you don’t see the money. And eventually, like my wife, you forget it was ever there.
There are a couple ways to automatically save:
1) Deduct Directly from Your Paycheck
Ask your company’s payroll office to have a fixed amount be deducted directly from your paycheck every pay period. An easy win is with your 401K contribution.
Most 401K plans allow you to deduct a percentage of your pay or a fixed amount to your retirement account. My recommendation is at minimum, contribute to your 401K up to the match. If you can do more, great!
Over the years as our salaries have increased, I have slowly increased our contribution by few percentage points each year. When you don’t see the additional money hit your bank account, you never get the chance to even miss it!
2) Deduct Directly from Your Checking Account
If your employer doesn’t provide this automatic savings option, you can have this deduction be automated through your bank’s checking account.
Go to your bank’s website and setup a monthly withdrawal from your checking account to a selected savings account.
My wife and I do this with our investments and annual expenses; tithing, brokerage account investment and annual daycare expenses.
The more we automate, the less we see sitting in our checking account. And the more we see in our other ‘hands-off’ accounts.
We realized over the years that we can’t trust ourselves with a big pile of cash in our checking account.
Automating your savings is not only effortless but a guaranteed way to build towards your goals; investing or saving for future purchases.
Once you set it up, it actually takes more effort to stop the automation. So ironically most people stick with it. After a while, people are shocked to see how much they’ve saved or invested at the end of the year.
Final tip with saving. If you have a specific goal you are saving for, I’d recommend giving it a detailed label; “Hawaii Vacation,” “Retire Early Fund,” “Home Down Payment,” etc.
Research has shown that when people label their goals, it results in additional contribution.
Do you have trouble saving? What do you think about automating your savings?