Wednesday, February 21, 2018

The Value of Involuntary Investing (Direct Deposit)

July 20, 2008 by Buddy · 1 Comment 

546207_green_piggy_bank-smMuch can be said for frequent, standardized, involuntary savings.  You probably know it as direct deposit, or automatic contribution.

Many employees participate in this type of plan through their employer.  They can usual either deposit into a standard savings plan or into a company sponsored 401k plan.  There are many advantages of the 401k which we will discuss later.

An automatic plan takes the decision (to save or not to save) out of your hands when you could become reluctant to save.  If you could elect each week, “Should I save for my retirement, or should I take my wife out to that fine, five-star steakhouse.  She deserves it.”  This automatic plan should be part of the budget process.  You keep enough cash available on-hand to make your savings plan secure.  For example, if you are tempted to raid your savings every 3 or 4 months, there is a problem.  Either the scheduled deposit is unrealistic, or you are not disciplined enough to maintain it.   Either way, you must make an adjustment.  Make the value that you plan to deposit realistic and workable. You’ll be surprised at how fast it will accumulate.

We all know people that do not have a savings plan.  When they land a windfall, they spend it as soon as possible.   Examples of windfalls would include tax rebates or the sale of a private residence.  Next week we will discuss the growth potential of regular savings.  Did you say you want to be a millionaire?  You definitely can be.

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  1. [...] $20,000 in the account, a result of contributing initially $30, and ultimately $50 per month (Involuntarily Investing) into this Dividend Reinvestment Plan [...]

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