My husband and I started investing on our own a little over a year ago. We decided to follow dollar cost averaging, and so twice a month I would move money from my bank account into the investment money market account, and then I'd use it to buy funds.
I'd heard about setting up automatic investment systems, but I was fine with my approach, and I didn't really know how to set that up. Had I known how easy it was I would have done it long ago.
The great thing about having automatic investing set up, is that it takes financial inertia and has it work for you. You'll know how powerful automatic investing is if you have a 401K or HSA. Each month, money automatically goes into our retirement accounts and our health savings account, without us having to think about it. If we actually wanted to have access to that money to spend on other things we'd have to go out of our way to stop the automatic transfer, and for most of us, the laziness overcomes us and we'll simply continue on with the current path.
Automatic investing also takes the choice out of it. The money that has been ear-marked for investments is simply removed, and thus you have to figure out how to live on what you have left. You don't have the option of just skipping one investment this month to spend on a vacation, new outfit, or TV. You're setting up what you want your money to do before temptation strikes and you, saving you from yourself.
So let's get down to the nitty gritty of setting up these automatic investments.
I currently have two investment accounts, and each of them offer the ability to set up automatic investing. If yours doesn't offer it you may want to consider a switch. Now to set up my investing I simply had to designate the amount, the fund I want to purchase, the date and the frequency, and that was it. It really is that easy.
The one thing I now have to be mindful of is keeping the appropriate amount in my checking account. I used to keep only around $500 in there at a time, and now I have to keep closer to $10,000. If I were to not have enough money in my checking account to make an automated investment, the purchase would still be made but it would be made on margin. This is something I plan on avoiding because you're basically investing using credit, and the firm can ask for the full amount back at any time. Still, having to keep that amount in my checking account is much easier than the multi-step process I was having to undertake before, and I think I'll get used to it eventually.
But it's not just investing that can be made automatic. Savings and debt payoff can also be scheduled for you. If you want to make an extra mortgage payment each month, just schedule it automatically. If you want to give more to charitable causes, set it up through automatic bill pay (which we've done). If you are having trouble saving an emergency fund, or for Christmas or vacation, set up an automatic transfer into the appropriate savings account.
If you're anything like me, you have good intentions with your money, but life just seems to get in the way sometimes. Setting up some automatic systems can help you to stay on track even when you're not feeling as committed to your financial goals.