Personal Finance Blog by Debit versus Credit

Grow Your Wealth With Automatic Savings

January 7, 2009 | Filed in: Personal Finance | 2 comments

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While most people yearn for wealth not all will achieve any significant levels of wealth in their lifetime.

I am of the opinion that anyone can build wealth, but for most of us building wealth will take time. It doesn’t come to most of us because of our natural abilities or talents or because we were born into a wealthy family. Instead it takes time, patience and perseverance.

Wealth building is not necessarily an easy process, but it can be done. One way to attempt to ensure your future wealth is to set up an automatic savings plan.

Leverage Your Automatic Savings to Build Wealth

Does your employer offer Direct Deposit of your paycheck? If it does you might consider using Direct Deposit to automatically transfer a certain amount (or percentage) of your paycheck into a savings account (or various savings accounts). It’s important to save for various large expenses, as well as for emergency needs and then of course, retirement.

For example, if you don’t already have an emergency fund you might consider opening a high-yield savings account, such as the Orange Savings Account, or a money market account and then setting up your paycheck to automatically deposit a certain amount (or percentage) every pay period into your emergency fund account.

It would also be wise of you to set aside a certain portion for any large purchases you plan to make in the future. If you have kids you might consider setting aside a certain dollar amount every month for their future educational expenses, for example. Of course you’ll also want to consider retirement. If you’re not already taking advantage of an employer sponsored retirement account (such as a 401k) then start. If it’s not something that your employer offers then start your own retirement account: a Roth IRA or a traditional IRA.

What Might All This Automatic Saving Look Like?

For simplicities sake let’s assume that your paycheck is currently deposited into your checking account to the tune of $1,000 every week. Now let’s assume that you don’t have an emergency fund yet and that your employer does not offer a retirement account, therefore you have decided to fund your own IRA. Also let’s assume you’re saving up for a new computer that you’d like to be able to pay cash for.

Since your weekly expenses are relatively low (about $400) you’ve decided to save a substantial amount of every paycheck. You want to put at least $200 every week into your emergency fund and you’d like to put at least $200 into your IRA as well. That leaves $200 after other weekly expenses and you’ve decided to put just $100 into it, leaving the rest as petty cash for you to play with throughout the week. You could set this up several ways. You could have the money deposited directly into your different accounts by your employer or you could put it into one account (such as your checking) and have it automatically transferred from there to your different savings accounts.

The advantage of having your employer Direct Deposit the amounts is that they should be able to support percentage based deposits. If you set it up this way then as your salary increases so will your savings, automatically. Check out this calculation I did from the retirement calculator over at Dinkytown.net.

As you can see from the calculator results if you save $800 a month from age 30 to 65 in an IRA account with a 10% average rate of return then you’ll have just over $3 million dollars in your IRA by the time you’re ready to retire. That’s not a bad amount, and keep in mind that is without ever increasing the amount you’re saving every month. Not to mention that if you are able to start saving before 30 you’ll be in an even better position.

Start Your Automatic Savings Plan Today

Don’t wait to get started. Set up whatever you need to and make your savings automatic. You’ll thank me for it. Trust me.

Tags: 401(k), Automatic Savings, Emergency Fund, retirement, saving

Best Of Debit versus Credit, December 2008

January 5, 2009 | Filed in: Personal Finance | No comment

December marked the end of a unique year. We saw everything from a major financial catastrophe to a historical presidential election. Here at Debit versus Credit we saw some interesting articles as well on everything from Investor Psychology to an argument in favor of making as small a down payment on a home as possible.

Go on ahead and check out the best of Debit versus Credit, December 2008.

Investing

An Interesting Thought On Investor Psychology
Determining Your Future Return With A Fixed Income Investment

Real Estate

Does A Large Down Payment Save Money In The Long Run?
Why A Large Down Payment Isn’t Always Best: Take Two

Personal Finance

Have You Made Your Financial Resolutions?

Did you miss any of the articles in December? To make sure that you don’t miss anything in the future don’t forget to subscribe to the RSS feed or if you prefer you can receive updates through your e-mail inbox!

Tags: Best Of, Finance, Investing, saving

Have You Made Your Financial Resolutions?

December 31, 2008 | Filed in: Personal Finance | No comment

I spoke earlier about how it’s important to set personal finance goals. Today I’d like to expound on this idea a little. It’s absolutely important to sit down and make finance related goals, and what better time to do this than at the start of a new year? Of course if you’re going to sit down and make goals for yourself you’ll have to think about your finances and if you have a family it’s probably a good idea to talk with them about your financial situation as well (especially your significant other).

Have you begun to think about your financial situation and where you’d like to be in a year? If you haven’t yet it’s not too late. Go ahead and sit down, do a little brainstorming and see what you can come up with. Here are a few ideas to get you started.

Review Your Insurance Coverages and Needs

Do you have a family? Are you the primary (or the sole) breadwinner? Do you own a home?

If you’ve answered yes to any of these questions (or more than one) there is a good chance that you need life insurance. If you don’t already have life insurance then now would be the time to look into it. God forbid that something bad were to happen to you or your significant other, but if one of you were to tragically pass then what sort of a financial situation would that leave your family or significant other in?

Another thing to consider is disability insurance. If you were to become disabled would you lose your income? Most employers offer disability insurance as a benefit to their employees. Check to see if it’s a benefit that you’re receiving, and if you’re not then consider signing up for it. My friend Trent at The Simple Dollar has made it a goal of his to review his insurance needs so he can be prepared in the event of a disaster.

Review Your Retirement Accounts & Plans

Are you participating in your 401k retirement account, or if it’s not an offered benefit are you investing in an IRA or Roth IRA? It’s important to start planning for retirement at an early age because the sooner you begin saving for retirement the sooner you’ll be able to retire, or the more money you’ll have when you retire.

Make sure to review the retirement plans that you have in place and if you’re not already investing in a 401k or similar retirement plan it’d be a great idea to set a goal to start saving for retirement.

Pay Down Your Debts

Do you owe thousands of dollars in credit card or other unsecured debt? This would be a great time to review what you owe and what you can do to pay down your debt as much as possible. My friend Doctor S at Finance Your Life has set himself a goal to pay down a large portion of his student loan debt throughout the next year.

Don’t Do Nothing

I hope these tips have helped to give you an idea of the kind of planning and resolution setting that you can do in order to improve your financial situation. The important thing to remember is this: don’t do nothing. I know it’s worded weirdly, grammatically speaking, but it’s true. Plan for the future and you’ll be in a much better position than you’re in today. Good luck on those New Year’s Resolutions!

Tags: Debt, Goals, Insurance, Investing, New Years Resolution, retirement

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