Automatic transfers -- fuhgeddaboudit!
Just as most online banks can pay our bills for us regularly, they can also automatically transfer funds. This is a wonderful way to take the guess work out of saving money or paying down debt. At work, your 401(k) contributions are automatic -- they don't seem to hit as hard because you're not writing a check every pay period. You can, and should, apply this same concept at home if you need a little discipline with your savings and debt payoff.
I have automatic transfers/drafts set up for a few accounts: my 401(k), car loan (regular payment and extra principal), college savings account, and an emergency fund. Each month, money goes into those separate accounts automatically to be used for the specific purpose the account is given.
Before deciding where to start sending your money, do some planning and think of the few big-ticket things you need to save for or pay off. I decided I needed to save for retirement, my wife's college, and an emergency fund (just in case the roof caves in tomorrow). Also, I have a loan on one of my cars and would like to pay that off as soon as possible. If you have debt, analyze the situation before deciding to pay it off instead of saving.
Once you have the three to five accounts into which you'd like to start putting your extra money (if you don't have any, make some spending cuts and find some!), use the computerized discipline of your online bank and fuhgeddaboudit! If you're paying down a debt, make sure you're reducing the principal and not just paying the account early (sometimes to be sneaky they apply your extra payment toward next month's payment). If you decide to save rather than pay down debt, open a separate savings account (for saving for college, I recommend a 529). E*Trade is currently offering 3.3% on their savings account with no minimums -- a great place to get started.
After you've set up your automatic debt payments/savings, readjust your monthly budget as if you just took a pay cut. Then, don't even look at the balances of your selected accounts for a few months. When you check them, you'll be pleasantly surprised.
By treating your savings and debt reduction like regular monthly expenses (hey, you've got to pay yourself first!), you'll be pleasantly surprised in a few months when you find yourself in a much better financial position. Good luck!
I have automatic transfers/drafts set up for a few accounts: my 401(k), car loan (regular payment and extra principal), college savings account, and an emergency fund. Each month, money goes into those separate accounts automatically to be used for the specific purpose the account is given.
Before deciding where to start sending your money, do some planning and think of the few big-ticket things you need to save for or pay off. I decided I needed to save for retirement, my wife's college, and an emergency fund (just in case the roof caves in tomorrow). Also, I have a loan on one of my cars and would like to pay that off as soon as possible. If you have debt, analyze the situation before deciding to pay it off instead of saving.
Once you have the three to five accounts into which you'd like to start putting your extra money (if you don't have any, make some spending cuts and find some!), use the computerized discipline of your online bank and fuhgeddaboudit! If you're paying down a debt, make sure you're reducing the principal and not just paying the account early (sometimes to be sneaky they apply your extra payment toward next month's payment). If you decide to save rather than pay down debt, open a separate savings account (for saving for college, I recommend a 529). E*Trade is currently offering 3.3% on their savings account with no minimums -- a great place to get started.
After you've set up your automatic debt payments/savings, readjust your monthly budget as if you just took a pay cut. Then, don't even look at the balances of your selected accounts for a few months. When you check them, you'll be pleasantly surprised.
By treating your savings and debt reduction like regular monthly expenses (hey, you've got to pay yourself first!), you'll be pleasantly surprised in a few months when you find yourself in a much better financial position. Good luck!
posted by Scott Bliss @ 7:02 AM
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