Automate Saving to Reach Your Goals

Automatic Savings Programs Can Help You Reach Your Financial Goals

You can save for just about any financial goal with the help of an automatic savings plan. Setting up a program to automatically save money for you can be accomplished in at least two ways. You can ask your employer to automatically deposit a predetermined amount of money to a designated account of your choice, or you can ask your financial institution to transfer a set amount of money from your checking account to your savings account at regular intervals. Both options offer you a way to remain committed to your financial goals, and once established, most individuals adjust to the reduced amount of money they have to spend each month.

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Tools to Help Automate Your Saving Habits

1. Make your IRA contributions. Traditional and Roth IRAs are a great way to save for the future. A traditional IRA offers the advantage of tax-deferred growth, effectively boosting your returns. In other words, the money you contribute to a traditional IRA is pre-tax, which allows for greater potential growth. However, taxes are due upon withdrawal, and early withdrawals before age 59 ½ may incur penalties. For information on current annual contribution limits, visit https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
2. Build a bigger retirement fund. Already using your employer’s retirement plan and an IRA to your advantage? Consider putting more money into a savings account on a regular basis. You can set a goal for your account balance, such as $5,000, and then move that money into a Certificate of Deposit that earns at a higher rate.
3. Start saving for a college education. Decide on an amount you want to set aside for each child and set up an automatic transfer of a set amount of money each month. A monthly $250 deposit can grow into nearly $39,000 over 10 years at a 4% rate.
4. Automate saving as a part of your investment strategy. Dollar cost averaging involves regularly investing a fixed dollar amount in an investment, which can be effective with mutual funds. This method reduces the risk of buying at market peaks and lowers the average cost of the mutual funds over time. A mutual fund or brokerage firm may be able to help you set up this type of plan.
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5. Your estate planning can benefit from an automatic savings plan. Individuals sometimes consider gifting funds to their heirs as they get older and have wealth to share. This can provide their heirs immediate funds while also helping reduce their ultimate taxable estate. A certain amount may be gifted to an individual without triggering gift taxes, and that amount can be doubled if a husband and wife choose to make the gifts together. One couple can give a substantial amount to family members to help with estate management. If this is something you’re interested in, consult your tax advisor for guidance and to learn about the current thresholds for gift tax.

It's easy to overlook or forget about saving or making regular transfers to your savings accounts, but using tools to automate those actions can help keep you on track to meeting your financial goals.