Automatic Savings Programs to Reach Your Financial Goals
One of the simplest
and most effective tools you can use for almost any saving goal is an
automatic savings plan. Automatic saving programs generally come in two
forms - either your employer deducts a certain amount from each paycheck
and deposits it into a specific account or your financial institution
moves a certain amount from your checking account into a savings account
on a regular basis. Either way, these automatic transfers add a discipline
to your saving. Once people use them, they often find they do not even
notice the smaller amount they have to spend each month.
savings plans to work
- Fund your 2017
IRA contribution. The contribution limit for 2017 is $5,500 for both
regular and Roth IRAs ($6,500 if you are age 50 or greater). Decide
which type of IRA you want to fund, open the IRA account and then have
$458.33 ($541.66 if you qualify for the extra $1,000 contribution) automatically
transferred each month into the IRA account.
- Fund an even larger
amount for your retirement. If you are already taking advantage of your
employer's retirement plan and an IRA, you can transfer even more into
a savings account each month. When the balance reaches a certain level,
say $5000, transfer the funds into a Certificate Deposit to earn higher
- Save for your
children's college educations. Determine the amount you want to set
aside for each child, establish a custodial account for the child and
have that amount transferred each month. Transferring $250 each month
will accumulate to almost $39,000 over 10 years at a 4% earnings rate.
- Combine an automatic
savings plan with a Section 529 college savings plan. This would work
similar to transferring the funds into a custodial account, but would
also have the benefit of the earnings not being subject to current taxes.
Earnings within a Section 529 plan are tax deferred and can be withdrawn
tax free if used for qualified educational expenses.
- Combine an automatic
savings plan with your investment strategy. Dollar cost averaging is
a method of buying a constant dollar amount of an investment on a regular
basis that works very well with mutual funds. Dollar cost averaging
eliminates the risk of "buying at the top of the market" and
over time reduces the average price you pay for the mutual funds purchased.
Most mutual funds and brokerage firms can establish these plans very
- Use an automatic
savings plan for estate planning purposes. Older and wealthier individuals
often want to transfer funds to their heirs during their lifetimes to
reduce their ultimate taxable estate and to provide their heirs with
more immediate funds. Up to $14,000 per year can be transferred to an
individual without triggering gift taxes. If both a husband and wife
want to make gifts, the total can be up to $28,000 per person. If this
is something you want to consider, be sure to talk to your tax advisor.
Over a relatively short period, one couple can transfer a great deal
of money to their children (and grandchildren) to help manage their
Taking actions to
regularly save or transfer money can be easily delayed or forgotten. Using
a little bit of automation by having your financial institution do it
for you can make the process easier and more effective.