5 Top Changes I Made to Improve My Financial Life (continued)
What are the top changes we made to improve our finances? Below concludes the discussion of the top 5 things we did that I feel had the largest and most immediate impact.
5. Automate Savings
The final step that I took was to lock in these savings. Knowing myself, I realized that I had a strong need to “hide” that money from myself and get it out of my regular checking account. Historically, my savings have been most successful when I can play these little mind games with myself. So, the question is what to do with those savings to attempt to turbo charge my savings. I have spent many years “playing” the markets with varying degrees of success. When I did well, I chalked it all up to my intelligence and skills and when I did poorly, it was undoubtedly those uncontrollable market forces or worse…. Evil politicians messing with economic policies. Obviously, this was convenient thinking and I knew it even as I succumbed to it. Therefore, passive index investing appealed to me. It would neutralize my habit of overthinking things and trying to time markets. The company that seems to be discussed the most often is Vanguard and with a little research I found that they had fees that were far better than anything I had previously paid on my investment accounts. So, I opened an online account. This was much easier than I expected and was set up in minutes. It took a few additional days to link it to my bank account. The steps to link the account took minutes, but there were some tiny transfers to and from the account to verify the access. So, in a matter of a few days, I was all set up and ready to go.
Next, I had to decide on an automated savings plan. I have always tried to keep a cushion in my checking account to overcome any temporary items to arise each month. With this in mind I felt that a stepped approach would work best for me to overcome my fears of going too far with the savings and over drafting my checking account. The timing of automatic transfers was also a concern of mine since I like the control of knowing when money goes into or out of my account. This is just a psychological issue that I have and need to overcome. When I started working full time, it took me many years to agree to have my paychecks deposited directly to my bank. I liked the control of physically going to the bank and handing my check to a teller. In hindsight, it was a pretty silly hang-up and I knew that auto-savings would fall into this same category once I overcame the fear and control issues. I decided to time my transfers with my bi-weekly payday schedule. I started with a $250 per pay period transfer. This amounted to roughly $500 per month and I felt that this was a strong start and would be aggressive yet still allow me to adjust if it turned out to be too aggressive. Not surprisingly, I didn’t even notice the withdrawals. I did this for a few months and then stepped up the savings amount to $300 per transfer, then $500 per transfer and at present I am moving $550 every other Friday. I just made this recent change within the past month and as expected, it has not negatively impacted my monthly budget. I will continue to adjust the amount upwards every few weeks or months until I land on the amount that tests the limits.
One small additional change I have made attempt to automate my savings was taking advantage of a program that my employer offers which was to schedule automatic increases to my 401K contributions. I decided to increase my contribution by 1% each year on my birthday. For the past few years I have maxed out my contributions to my 401K and this change will simply allow that to happen sooner in the year. When I do max out my contributions and the money that was previously automatically withheld from my paychecks comes to me, I plan to move that to my investment account immediately.