Automatic saving is of course well known idea but less practicing one. Major advantage of automatic saving, it would never give much money burden to any individual who practices. It not only help to build wealth slowly, but also ensure the contributions to investment instruments happens in a disciplined way. Practicing an automatic saving can be done any individual who have a bank account or an employee offers direct deposit facility.
What does automatic savings plan mean?
A type of personal savings system in which the plan contributor automatically deposits a fixed amount of funds at specified intervals into their investment account. The typical structure of this type of savings system is an automatic transfer from an individual’s bank account into a different savings or investment account every two weeks or any specified time such as monthly or quarterly. Then, every time the individual receives a paycheck from their employer, their desired savings amount is automatically transferred into their savings account which generally not accessible easily. Here are some of the most popular methods available to save or invest money automatically upon receiving pay checks.
1. Automatic SIP to Mutual Funds Known as the king of all automatic savings plans. Systematic Investment debit a particular, fixed, amount from the bank account of the subscriber in the given period till the duration. This would ensure the Dollar Cost Average, one of the best known and profitable investment method, in place and the investment happens in a timely manner.
2. Employer Direct Credit
Most of the employers providing facility to the employees to regularly save money automatically by debiting a particular amount (which decided by the employee) from the salary deposit amount to a money market instrument at the time of each pay check reached to the account.This can be easily done by by filling a prescribed form for it and submit to the employer.
3. Employer plan such as 401k, Roth IRA, 529 Plan. EPF etc..
Employees can contributed to various plans sponsored by governments which intended to retirements savings. This also a good option to save regularly and provide an option to increase the amount time to time. However, such plans have limitations depends of nation to nation. HR departments would be able to provide the best information on this automatic saving plans and the taxes associated to it.
4. RD or Recurring Deposits
Recurring deposits are another automatic saving method which associated to a savings accounts. Upon written confirmation from the account owner, banks would automatically transfer a fixed amount in each duration to the separate RD. Duration of this can be decided by the account owner however, some of the banking rule applicable to it depends on nation. If you dig a little, there would be lots of such plans available to select depends on you requirements. Meeting a financial planner would be highly helpful to identify such plans available in your country.
Common Pitfalls of Automatic Savings Plans
If you choose to set up a savings plan, be careful to avoid some common pitfalls. First, avoid overdrawing your checking account by forgetting when withdrawals will occur. Scheduling transfers shortly after payday reduces this risk. Secondly, remember that your savings account should not be used for regular expenses. If you are regularly using savings accounts for your monthly expenses, either you are unrealistic in how much you are saving each month or you need to rework your budget to fit within your means. An automatic savings plan is a great way to make saving a habit. Because it does not require conscious thought each month, it makes saving easy and consistent. As long as you consider your savings goal and budget as you set up your plan, you will soon find your savings account growing.
Keep in mind, paying all your bills in time and limiting money spending habits are the best supporters to automatic savings plan. If you have no control over spending and taking debt continuously, any savings plan would later comes as a big failure. Self control over money is a must factors to build wealth using proper channels like automatic savings plan.
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