Is it possible to achieve more, by working less? It seems too good to be true – like a diet pill that promises you can eat all the cake you want and still lose weight.
But the truth is, sometimes we make it hard for ourselves to do the right thing. What if we intentionally set ourselves up for financial success by making it as easy as possible to do so. The finish line is the finish line. You don’t get extra points for running barefoot over broken glass to get there – in fact, you simply need to get there as quickly and safely as possible.
According to James Clear, author of Atomic Habits, a key strategy to forming a good habit is to make it easy. Relying on willpower, he says, is a short-term solution that rarely can be sustained over long periods of time. Why? Because we have a finite amount of willpower, and we always look to do what is easy.
Solution: Make it easy to establish and keep up a good habit.
Habits that investors need to cultivate vary, based on what they find most troubling. But always, the answer is simple to implement with automation. The fewer decisions you must make, the fewer action steps you need to take, and the more likely you will follow through. Set up links to the appropriate accounts and let it run like clockwork. Over time, you will get closer to your goals.
Nervous about inflation? Keep higher cash reserves. Once your paycheck deposits, have a standing instruction that moves a set amount of cash into a separate bank account on a certain day of the month. A hefty emergency fund tends to make people less inclined to liquidate investments at the worst times. Why? Why sell when you have what you need in hand? Besides, selling involves placing a trade in real time, while prices are moving. Nailbiter.
Afraid of market volatility? Invest a set amount every paycheck. This could be in your retirement plan at work or in an IRA or Roth. Setting up automated investments is key to paying yourself first and making your financial health a priority. Second, an employer-sponsored retirement plan may give you a match, which is free money and will get you to your goal faster. Third, buying every month or pay-period means that when the market is volatile, you will buy more shares (think, on sale).
Budgeting seems daunting? Try doing a reverse budget – set up automatic bill pay and auto invest to save money in either your bank account and/or retirement/investment accounts. The leftover cash from your paycheck is what you can spend on your wants. Should the remaining cash fall short of what you need, then you can do a deeper dive on which recurring, fixed expenses you can lower (like bundling phone/cable – or changing the service plans). Not only will this give you an opportunity to get your budget balanced, it may force you to look at spending that has become routine, but no longer serves you (having a landline, for example, when you rarely use it).
Future college costs seem staggering? College savings plans (529 plans) allow you to fund college costs often with no or very low minimum investments. When we were expecting our twin sons, we set the accounts up and put in $100 into each account every month. Any gifts the kids received for birthdays, holidays or special occasions went into the account. Eighteen years is a long time to compound; all we had to do was set up the funding. It ran itself. Keep in mind, some plans will give you benefits, such as reducing your state income tax. Just be sure and look for low expenses. For example, NY offers two plans, but nysaves.org is much less expensive. Compare various 529 plans here.
Wills haven’t been updated? While this is something to take care of with an attorney, there is a stopgap to put in place quickly until you get your legal documents in order. Make sure all the beneficiaries on your retirement accounts and insurance policies are up to date. For non-retirement accounts (investment or bank), put a Transfer on Death on the account, which means the funds in the account will move seamlessly to your heirs if you should pass unexpectedly. If you have young children, though, make sure to get your legal documents in order – guardians and trustees must be appointed to watch over minor children and their assets.
It will take some discipline to get your accounts set up for automation, but once you do – it is a set it and forget it situation. You can free up your time and stop worrying about whether you remembered to fund your retirement or the college fund. Everything will get done quickly and quietly.
Establishing good financial habits doesn’t have to be painful or time-consuming. Invest/save regularly and often. Automation makes it so you just need the discipline to set it up once.
What could be easier than that?
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