In my experience, the easiest way to save money is to do it in a way which won’t take any brain power. This is why turning your savings into systematic payments is the easiest way to ensure you continue working towards your financial goals.
Making your savings systematic removes almost all decision making from the process. All you have to do is decide once at the beginning you would like to save a certain amount per month. Then you set up the systematic one time, and the savings will continue forever without ever needing to think about it again. During this period, you should periodically visit with your CFP professional to ensure the current systematic still has you on track to reach your goals. As time goes on the savings will continue to build until eventually it becomes a large enough nest egg to accomplish whatever your goal for the savings was.
However, if you try to save without setting it up systematically it can be much more challenging. When you need to login every month to press the buttons and make the savings happen, it becomes incredibly easy to decide to skip this month. There are a myriad of excuses you can use to justify why the savings won’t happen this month until eventually time goes on and you are nowhere near your savings goal.
A common example we see of this is when clients increase their 401k contributions. At the start of every year, the client will tell HR they would like to increase their contribution by 1%. This 1% increase may not sound monumental, but time works wonders. Every year they continue to increase contributions by 1% until eventually they hit the point of maxing out their contributions. Now, they are contributing a large amount of money towards their retirement goals all while taking small, systematic, steps over time to increase their contributions. The best part is, most of the time they do not see any difference to their lifestyle year over year as a result of this change.
You Will Adapt
It is human nature to adapt to your current circumstances in order to survive. We have seen time and time again with clients who turn on systematic savings they simply learn to adapt. Even if they believe cash flow is tight, they may decide to set up a systematic contribution to their Roth IRA for $500 per month. If cash flow was tight before, surely this means they will be running a deficit and eating into their bank savings right? Actually, in most cases they never end up needing to dip into savings. Psychologically they change their habits knowing they have $500 less per month to work with, and they end up making minor changes to their lifestyle. Fast forward 5 years down the road and they have contributed $30k to their Roth, hopefully gained tax free growth on those contributions, while not noticing a change to their lifestyle.
Making the decision once to set up a systematic savings plan for yourself can allow for a drastic change in your financial situation as time goes on. Your day-to-day finances will adapt to the tightened cash flow to allow you to survive even with these extra savings which can no longer be used for living expenses. However, if you force yourself to make the decision on a savings contribution every month you are bound to come up with a reason to skip a month here and there until you are no longer contributing at all. I strongly suggest you look into setting up a systematic savings plan for your family. If you would like to speak with a financial planner on the best method for you to set up a systematic savings plan please give our office a call at (734) 681-7575 or email me at firstname.lastname@example.org.