You’ve probably heard of paying yourself first. But let’s be honest – it can be easier said than done.
However if you want to reach your goals and invest for your future, you have to follow through.
When you automate those contributions you’re making sure that it gets done.
No waiting until after all the bills are paid (and there is little, if any, money leftover).
Don’t Completely Set It and Forget It
While I believe that automating your finances can be a big advantage, it isn’t the end-all solution.
Even when you automate your contributions, you still need to be aware of what’s going on with your money.
Let me explain why with my husband’s 401(k).
Pros and Cons of Automating Retirement Contributions
My husband’s job offers a 401(k) with a match so he contributes enough to get 100% of that match.
That extra money from his company grows in his 401(k), building the balance faster than if it only had his contributions.
It’s automatically deducted from his paycheck so we’re never tempted to spend that money on something else.
That helps us to take advantage of the power of compound interest. He signed up as soon as he qualified, giving his money more time to grow.
He’s been there for years and we’ve seen the balance grow in that time. He doesn’t have to worry about missing a contribution, it’s automatically sent in every pay period.
Reviewing Asset Allocation
On the other side of automation is when he gets too busy and forgets to check his portfolio for performance.
Every quarter or so check one’s asset allocation can make sure that the retirement fund is on target. It may be that it’s time to re-balance the assets so it’s back on target.
With our recent net worth review, we did discover that it was time for him to re-balance.
By the way if you have an IRA, you also need to check to make sure everything is balanced.
For most people it’s simply redirecting future contributions to make your portfolio match the target allocation you created. Others may sell and buy their current assets to get what they want.
If you find that you’d prefer automating re-balancing then having an account with a company like Betterment can be useful option. They can handle that task for you and it’s free. You can check them out here!
Of course they are not the only option for keeping your IRA. I also loveand use Vanguard for my IRA.
Elle Martinez helps families at Couple Money achieve financial freedom by sharing tips for reducing debt, increase income, and building net worth. Learn how to live on one income and have fun with the second..