Over the years I have encountered many people who swear by the “paying yourself first method” and setting up an automatic savings account where money is transferred from each paycheck to a savings account like The Orange Savings Account at ING Direct. that is to be used for a specific purpose. I too have automatic transfers to my investment account and I try to make it hurt!
What I mean is that I transfer more and more money each month to my savings and investment accounts until I am literally down to my last few dollars at pay day. Yes, I do have a line of credit set up and an emergency fund of cash just in case. However, I actually enjoy challenging myself each month to save and invest more than the previous month.
The whole idea behind this strategy is to have the money move automatically so that you don’t “see” it and therefore will not miss it. In theory, this is a great idea but it does have a downfall for those who are first beginning the strategy.
Commitment Requires Goals
The downfall of this strategy is that you must be committed to a certain goal. That is, the savings account must have a purpose that is so strong that it will allow you to have the will power not to touch it except for that purpose.
You see, setting up this automatic savings account is well and good, but it doesn’t reach the root of the problem. If you are currently unable to save money, what exactly is having the money “automatically” sent to a savings account going to do? It is a start, but the key is not to succumb to your ingrained desire to spend.
You must set a goal that is powerful enough for you to want to save for it above anything else. I recently told you the story about my brother wanting to save for a house, but ended up succumbing to his desires, purchasing a car that he can’t afford.
Avoid The Quick and Easy
In order to reach in goal in life, you must be willing to sacrifice something.
Please read the previous sentence again. When you truly understand this concept, you will be substantially further ahead than the majority of your peers.
This doesn’t apply just to saving money, it can apply to every goal that you have. If you want to get better grades in college, then you might have to sacrifice going to that killer party on Saturday night.
In my brother’s case, he wanted to buy a house but he wasn’t willing to sacrifice driving a new car in order to save for the down payment for the house. He knows he can’t have both and he could get financing for the car now and he would have to wait a year or two for the house. He had an automatic savings account set up for the house, but when he saw the car and realized he had enough for the down payment on that…you get the picture.
It is quite simple. Nothing is going to be handed to you; you must make choices and decide what is most important to you. However, if you keep taking the easy way out and letting the daily temptations get the best of you then you are doomed.
Making Tough Choices
Trent over at The Simple Dollar just posted a nice article on how to make financial choices in order to start your automatic investing account and watch it grow. I suggest you read that article and decide what you can do without in order to start saving automatically and reach your goal.
No matter what you decide, please remember that there will be temptations along the way. It is up to you to figure out what is most important for your future.
I suggest opening an Orange savings account at ING Direct for building an emergency fund or saving for a specific goal. I also automatically transfer funds each month to an investment account for purchasing stocks or ETF’s. For low fees and great flexibility for purchasing dividend paying stocks, I recommend ShareBuilder for your 401K and /or brokerage account.