Checking a Box: How Automating Investment Contributions Boosts Your Financial Profile

​Technology has transformed the financial industry-- from the practice of investing to the strategy of saving, and flexibility of spending, technology’s hand is present in the many ways that we interact with money.

One of the ways we see this most often is through the process of automation. A technique and system for operating, automation uses electronic devices to streamline a process without the need for human interference. Automatic investing is when you arrange to have a fixed amount of money come out of your paycheck or bank account every month and contribute to a predetermined account.

This process finds many of its benefits in the personal finance realm. For example, you can select to automate your credit card payments each month so that you never miss a payment. This can also be done for a myriad of other expenses like rent, utilities, loans, mortgage, car payments, etc.

With automation, hitting your goals becomes so much easier. Why? Because it is really easy to manually miss a credit card payment or forget to contribute to your 401(k) account.

You have deadlines, errands, family, a swirl of distractions which increases the likelihood for human error. By automating the payment, you never touch the money. Along with adding to your investment each month, the payoff is wonderfully favorable. By utilizing the gift of automation in your financial planning, it allows for good, sound financial decisions without the ‘human’ element. How can this practice be applied?
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​At the Office

It’s wise for employees to automate workplace retirement or savings plan contributions each pay period. This way, you do not have to take money out of your account to put into your retirement plan or health savings plan that your employer offers.

If you don’t see the money, you won’t think about spending it. Automating your contribution to your investments will decrease the likelihood for extraneous or discretionary spending habits. You won’t miss the money because it is going toward your future financial needs.

This method of savings, called systematic investing, focuses on investing small but consistent amounts over a long period of time. Spending more time in the market by consistently growing your portfolio through wise investments means growing your wealth faster as a result of compound interest. Whether these funds are coming from your paycheck and being deposited into your workplace retirement plan, like a 401(k), or are coming from your regular checking or savings account into a separate retirement or investing account, knowing that you’ll be able to account on slow and steady growth to reach your savings goals often comes as a welcome relief.

Most retirement plans have high tax penalties should the money be removed for a different purpose, therefore many people leave these accounts alone and just let them grow. The steady growth each month, leaves these accounts in quite healthy states when they do need to be used.

With each payment automatically taken out of your paycheck, you will also be able to budget your expenses off of your current paycheck already knowing that your retirement account is being added to in the background.

These automated payments can be used for many workplace benefits:

• Retirement 401K Plans
• Health Savings Accounts
• Flexible Spending Accounts
• Health Reimbursement Arrangements
• Insurance Plans

Keep in mind that if you elect to put money into any of the accounts that your employer offers, it is a good idea to have the money taken out of your paycheck. This action alleviates the stress and time of calculating and adding the appropriate amounts to the coordinating accounts each month.
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In the Home

Automating your financial obligations can also be applied to other investments outside of your workplace. You and your financial planner can work out a plan for automating contributions to different investments you may have. Examples could be:

• 529 college saving accounts
• Individual Retirement Account (IRA) or Roth IRA
• Savings accounts/savings certificates
• Other taxable accounts

By automating contributions to your accounts, you are eliminating the possibility for human error and ensuring that you are putting in money each month to the accounts you wish to grow. Automating your financial contributions to different investment accounts is a great way to promote good, sound, and practical financial decisions. Embrace the technology, and let it transform the way you handle your finances!

Tony Velasquez runs Wisely Advised, LLC a full-service Registered Investment Advisory Firm offering Financial Planning, Accounting and Investment Advisory services to individuals, families, and businesses. 
 
Whether it's traveling, being at the beach, or at his family's ranch in Texas, Tony loves enjoying time with his family and friends. ​​​