Monday, December 2, 2013

Investing on Auto-Pilot

Could not figure out how to crop my fingers from the bottom. :( 
Read this if: 

1) You don't save or invest because you think it takes too much time. 
2) You don't save or invest because you forget. D: 

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I spend less than an hour a month managing my finances because everything is on auto-pilot. Most of the time, I forget that I even have money. 

Of course, when I started my whole plan, I thought about it very carefully and planned every little detail out, but that was just to get all the automating started. I recommend this approach for pretty much everyone, especially those who are busy.

What do I mean by "auto-pilot?" 

My paycheck goes straight into my savings account by electronic transfer. I have a budget for monthly spending, so I allocate that much to my checking account (from my savings account) at the beginning of the month, also an electronic transfer. I invest monthly in my Roth IRA, ALSO through electronic transfer. The key here is taking advantage of all the electronic transfer options available to you. Please see the picture above for clarification. 

Why do I think it's effective?

It's so easy to just forget about all this stuff. I know people aren't running around thinking about saving and investing, and that's okay. They don't have to be. With automatic investments, we can literally just spend a couple of hours setting something up and walk away. Just let time do the work for us. 

Another HUGE advantage is that with automatic investing, the condition of the market does not matter as much. Let's say I have an automatic investment to invest $50 per week in an index fund. One week, prices go down so I buy a whole bunch of shares. The next week, prices go up so I don't buy as many. But each week, I buy $50 of the fund. Over time, this actually evens out (this is called "dollar cost averaging," and I'll do another post about why this works). I never read about whether or not it's the right time to buy because I'm basically always buying. So again, that is less for me to think about. 

What are some possible problems? 

I'll admit, there are times where I wonder how secure my money is floating through the Internet, but here's the thing: if these companies lost money all the time, they'd go out of business really, really fast. 

Security is the lesser of your worries though. I've read about a lot of scenarios where people forgot how much money they had in their accounts. In that case, when they set up automatic transfers and they don't have the money to transfer, they were fined by their banks. It's like when you go to pay for something with your debit card (which is linked to your checking account) and you don't have enough money to actually pay for it. That's a problem. 

Bottom Line

If you choose to go this route, make sure you always have enough money in your accounts! Besides that, I really recommend this for the most efficient and carefree saving and investing. 

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As always, contact me with questions or suggestions! You can either comment directly on the post or send me an email to moneymattersjoan@gmail.com. 

Photo Credit: Me! 

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