Smart Ways to Save for Something Important
Everyone has questions about money. Give us two minutes and we’ll see if we can answer yours. Mike McCormick is a Registered Investment Advisor in Bozeman, Montana. His clients have complicated financial lives that are put in perfect order and kept that way. The information in this podcast is for informational purposes only and cannot be construed as financial advice.
Everyone needs to save money for some future expense like college, retirement, inheritance or gifting. What’s the best way to save it? That’s one of the most common questions I get. My goal is to not make it hurt anymore than it has to. So usually the simplest answer is best to do what’s easy. And it is always best accomplished with an automatic transfer of money from one account like your checking account into a different account that’s just set up to accumulate savings. From there you can move it into an IRA, a college account, or trust or whatever its ultimate purpose maybe.
Having the safe account as an intermediary serves a couple of important jobs. First, you can call back the money if you need to. Setting up a savings program is empowering, and many people tend to get a bit carried away, so it’s important to be able to access that money in emergency without paying a penalty. So, just use a simple savings account instead of something fancy. Also, this account shouldn’t have a debit card or an ATM card associated with it. It can have a checkbook, but you put that someplace very safe that you can’t get to it after a long night out.
But it is this automatic transfer that is the key feature to saving real money. Not sure if you believe me. Think about this, the three largest stores of personal wealth of individual net worth are home equity, retirement accounts, and life insurance. What do they all have in common? Well, they’re usually funded automatically out of your checking account with an ACH. Usually it happens before you even receive your pay! That’s the power of the automatic contribution.
So next time you wish you had extra money set aside to pay for something important, do something about it. Open up a new account at your local bank. Set up an automatic transfer from your checking account into that account. Have it happen monthly. Look to increase that amount overtime and you will ensure that your savings goals are met with the least amount of pain. And thank you for the good question!
Thank you for turning into the Montana money minute. If you’ve got a question for us, send me an email. I also appreciate any feedback. Have a great day and remember to go easy on yourself. Life’s hard. Let’s make the money part as easy as possible.