“Automatic Financial Discipline”

I cannot tell you how many times a month I hear someone state, “I wish we would have started doing this years ago.” These sentiments often don’t just apply to our finances, but also towards many “good” habits that we mean to implement but just get too busy with life along the way. I get it.

One great characteristic of many Americans is that we work hard. We put a lot of effort and time into bringing home the bacon. Unfortunately, for all the time we spend trying to make the money, many of us don’t put the necessary amount of time into the savings and wise management of that money.

Thankfully, simple technologies have made it easier to create investment and savings plans without much effort. When you get to the point where you are ready to start investing (after you’ve paid off consumer debt and built an emergency fund) then consider setting up an automatic monthly investment plan.

401ks and other employer sponsored retirement plans have been offering this service for years. Case in point… In 2008 when nearly everyone was terrified of putting and keeping their money in the markets, automatic payroll contributions to plans like these helped keep investors invested.  This may have helped save many Americans from not ever being able to retire. Though most folks weren’t dumping all of their extra money into the market as it tumbled, many forgot to turn off their automatic 401k contributions from each paycheck. Thank goodness. Because the plan was setup for them, folks continued to invest portions of their savings into the market and many were purchasing investments at deep discounts. The results were largely positive for those that kept in the game as the market rebounded over the next couple of years.

I look at these automatic investment plans/strategies like automatic discipline. And building wealth certainly takes discipline. There are numerous other behaviors that influence your long-term financial picture, and it would be terrific if we all developed those along the way. Setting up an automatic savings plan may be a good first step.

Here are two important numbers in our office: $458.33 ($5,500/12 months) and $541.66 ($6,500/12 months). These are the monthly amounts that many folks contribute to their Roth IRA or Traditional IRA (depending on their income tax bracket) to arrive at their maximum allowable contribution limit by the end of the year. (Max IRA contributions in 2014 for income earners under 50 years old is $5,500 and those over 50 may contribute up to $6,500/year).

Smaller, calculated, and automatic steps like these over time can make a huge difference. For example a 30-year-old that starts contributing $458.33/month to their Roth IRA until they are 60 years old, hypothetically earning a 10% average annual return, would have over $1,000,000 saved.  And in the case of the Roth IRA, that amount is 100% tax free.

Now I know that $458.33 might seem like a lot to some folks each month, but it’s pretty darn close to the average car payment that an American household pays. So ask yourself the question, “Would I rather keep that car payment now or have that retirement nest egg down the road?” ©2014

Matt Atchison is a Financial Advisor with Raymond James Financial Services, Inc. Member FINRA/SIPC.  He can be reached at matthew.atchison@raymondjames.com (402) 505-7700   13321 California Street, Suite 320 Omaha, NE 68154.

The information contained in this report has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Matt Atchison and not necessarily those of RJFS or Raymond James. Examples are hypothetical illustrations and are not intended to reflect the actual performance of any particular security. Future performance cannot be guaranteed and investment yields will fluctuate with market conditions. Unless certain criteria are met, Roth IRA owners must be 59 ½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

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