After my divorce from the gambling husband, my inheritance was pretty much gone, with the exception of a few properties that gave me a small monthly income. But I did something smart.
When the rent from the properties would arrive, before I spent a cent, I’d put a portion into my savings account. I did it automatically. I filled out a form and the bank took are of the rest.
I didn’t even have to think about. And even though it wasn’t a lot, it’s amazing how my savings grew over time.
Later, as the cash accumulated, I automated my investing, by using a technique known as Dollar Cost Averaging (DCA). DCA takes the emotion out of investing, reduces the risk of losing a lump sum in a down market and reduces costs because you buy less when your investments are expensive, and more when they’re cheaper.
Maybe you’ve already automated your savings and investing. Good for you. But if you haven’t, I urge you to do so.
Arrange for the bank to transfer fixed sums to savings on a fixed date each month. The date should be at least a few days after the money comes in.
If you’ve got more than one savings goal — say, building your emergency fund and taking a vacation—set up more than one savings account. **Note: Avoid savings accounts that charge fees.
I recommend having 6-8 months living expenses in an emergency fund. Once you have that cushion, then you can start investing automatically.
What I love about automating is it’s painless. You don’t miss what you don’t see. And it’s mindless. No discipline or reminder notes are required.
Investopedia has an excellent article on Dollar Cost Averaging, here.
Have you tried automating your savings? Share your experience in the comments below.
Discussion about this post