VOL. 128 | NO. 218 | Thursday, November 07, 2013
Rays of Wisdom
Dana and Ray Brandon
Automate for Painless Saving
By Ray and Dana Brandon
Ray’s Take Saving is hard. There are so many temptations when you have to make a conscious decision to put money aside each paycheck. For many, the money goes straight into a checking account, and then flows right out again to pay an endless stream of bills.
If something is left over it might go into savings, but how often is something left over? Our intentions are good, but even with modern technology easing the way, inertia is still a powerful force: An object at rest tends to stay at rest.
I’m a big believer in PYF, the “pay yourself first” philosophy – before you pay all your bills and expenses, you should save something for yourself first, not last. After all, isn’t your future at least as important as all those other responsibilities? So why not save to secure it?
Putting your savings plan on automatic is the easiest way to make “pay yourself first” a reality. It’s easier to save when the process is something you don’t have to think about – there are no additional steps to take, and the decision of what to save has already been made. Even better, when you don’t see the money in the first place, you’re far less likely to miss it.
The first step is to contribute the maximum to your retirement plan, not just enough to get any match. It’s hard to spend money that you never “get.” After that, you should set up an automatic draft from your checking account to your investment accounts. Most mutual funds are glad to set these up.
Try to automatically save as much as you can, but even if it is little as $50 a month, you’re creating the habit of regular investing. When you get a raise, be sure to “raise” your PYF. At some point you can calculate in more detail exactly how much you need to save for various goals, but at least you’re already saving.
Make automatic savings your first tool to “pay yourself first,” and you’ll be surprised at how quickly the money accrues.
Dana’s Take To instill the idea of saving, or “paying yourself first,” in your children, take advantage of their natural love for ritual and tradition.
As soon as you start giving a child an allowance, make it clear that part of that allowance is to be saved for the future. However, don’t just hold that money for her. Have your child place it herself in a special bank or container so that she can see it grow.
You might even add some aspirational statement to the occasion, something like: “What I’m saving will get me a bicycle/video game/whatever.” By doing this every time your child receives an allowance, you are instilling the idea of saving as a positive force from the very start. That can only serve well for the future.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife Dana has a Bachelor’s in Finance and is a Licensed Clinical Social Worker (LCSW). Contact Ray Brandon at email@example.com.