Save and Invest Automatically

An automatic investment plan makes sense for two reasons:

It lets you invest on a regular schedule.

It sets you up for success.

Once you set-up your account to automate your investments, you have placed the cornerstone upon which your will build your wealth. Mindlessly putting away part of your paycheck each week keeps your plan on track even when you get distracted by life. It is really easy to decide to spend your money rather than save, but true wealth is built upon the habit of paying yourself first and when you do it automatically, it is not longer a challenge, but a habit.

Pay yourself First

Most of us get paid, and then use all of our money to pay bills and meet living expenses.  Successful people who are building wealth do two things consistently every month:

They pay themselves first.

They invest, rather than leaving all of their cash in a bank account.

Start by paying yourself first as a strategy for building cash savings for emergencies, and then do the same thing with your investments.

Your employer may make this easy by offering a 401(k) or similar retirement plan to which you can contribute through automatic payroll deductions.

Otherwise, you can start a regular or Roth IRA and begin making regular contributions on paydays in addition to cash you transfer to a savings account.

Are you already saving enough for emergencies and retirement? Then it’s time to open a non-retirement investing account and put money away for “life”.

Set Yourself Up for Success

You can’t rely on willpower to reach your financial goals. Use automation prevent your emotions from influencing your financial decisions and helps to make sure your are paying yourself first each and every month.

Investor and financial author Robert G. Allen sums up the biggest reason:

How many millionaires do you know who have become wealthy by investing in savings accounts?

 

I rest my case.

Many of us delay investing (or fail to start at all) because we’re either intimidated by choosing investments or we’re afraid of the risk. An automatic investment plan can help. It’s as easy as opening a bank account. And, when you put your investments on autopilot, you take your emotions out of investing. Let’s look at how an automatic investment plan does this.

How to Set Up Your Automatic Investments

Nearly every mutual fund company and online stock brokerage makes it easy to set up automatic investing in mutual funds, whether it’s in an IRA or nonretirement account. Most will waive minimum investment requirements when you enroll in an automatic investment plan.

This is how it works:

  1. You set up an automatic transfer from your bank account to your investment account (for example, on pay day).

  2. You specify which mutual fund(s) to invest in and your money is automatically invested at the current price.
     

The key to keeping automatic investing affordable is to invest directly with a mutual fund company (for example, buy Vanugard funds through Vanguard or Fidelity funds through Fidelity) to avoid paying a trade commission each month. Alternatively, some online brokers (TD Ameritrade*, Schwab and others) offer hundreds of no-transaction-fee mutual funds in which you can automatically invest with no extra fees.