Ways to Help You Invest
by Emma Snow
Copyright 2006 Emma Snow
Everyone knows the importance of setting aside savings. Whether
it's for retirement, emergency funds or saving for the family
vacation, it is something that we should all be doing. Yet
sometimes this isn't as easy as we would like and at the end of
the month our money is spent without setting anything aside. The
financial services industry has become aware of this and has
created tools to help us save. If you have difficulty saving,
these tools may be your best way to ensure you have savings for
whatever comes.
Direct Deposit
Of all the tools to help you save, direct deposit has been
around the longest. Direct deposit is when your employer
deposits your paycheck directly to your checking, savings,
retirement or brokerage accounts. Many times an employer can
deposit your check to more than one account. If this is the
case, to help you with your savings, you could split your check
up by how it will be used. Spending money could go into your
checking account, investment money into your brokerage account,
retirement into an IRA or 401(k) and a percentage into a savings
account. This way you don't have to actually move the money into
savings, investments or retirement yourself, it is done for you
automatically at the beginning of the month. Setting up direct
deposit is usually just a matter of completing a form at your
workplace. For many people, money that goes directly into
savings is forgotten and therefore less easily spent.
Automatic Investments
When direct deposit isn't an option or you just want another
choice, automatic investments is a good way to help you save.
With this, your paycheck goes into one account and then you
setup times during the month when money is taken from this main
account and put into other accounts such as IRA's, investment
accounts and/or savings accounts. This is something you schedule
in advance and takes place on a monthly basis. This way, you
don't have to remind yourself to do it. This is very similar to
direct deposit but where your bank or financial institution is
doing the work for you instead of your employer.
This could also be used if your direct deposit limits you to one
account or only allows you to split up your check by
percentages. If this is the case, you can direct deposit your
paycheck into the account where you have setup automatic
investments and then have dollar amounts go into different
savings accounts. This is helpful for depositing into accounts
like IRA's where you can only invest a certain dollar amount
each year and you don't want to go over your limit.
Tax Return Money
When tax season comes, consider saving your tax returns instead
of spending them. This is an especially good idea for those who
have a difficult time saving on their own. You can deposit your
tax return directly into a savings account and start yourself a
little nest egg. If you worry about your ability to keep it in
that savings account, consider putting a lot of it into an
account where you cannot get it out easily, such as an IRA, a CD
or an investment with redemption fees when you take it out too
quickly.
If you don't have any issues with keeping your savings intact,
instead of determining where your tax return money should go,
you should instead determine why it is not coming to you in the
first place. The IRS website has a calculator that will estimate
your federal taxes and tell you what exemptions are appropriate
so you can break even on your taxes each year. Doing this will
give you more money each paycheck which enables you to start
saving immediately instead of waiting for tax time. This also
allows you to earn interest on that money for a longer period of
time.
Investment/Savings Credit Cards
Credit cards that actually help you save money? For people who
use a credit card for convenience and rewards and not for the
ability to carry a balance, this is a great opportunity.
Recently, a few cards have come to the market that offer
investment or savings points when you make purchases. Fidelity
Investments, Motley Fool and American Express are some of the
first companies to offer these types of Credit Cards. The way
they work is for every dollar in purchases, you earn points to
put toward investments or savings that you choose. Once there
are enough points to reach a threshold (determined by the card),
the points are redeemed as cash and deposited to an investment
account, retirement account or savings account that you have
designated ahead of time.
Workplace Savings Plans
Many employers now offer workplace savings plans. These come in
many shapes and forms, not just 401(k)'s but 403(b)'s, 457
plans, Roth 401(k) plans, etc. To contribute to a workplace
savings plan, money has to come from your paycheck since they
are employer sponsored plans. Your employer asks you to indicate
what percentage of your paycheck should be deposited to your
retirement savings account. Once this is done, that percentage
will come out of your paycheck each time and go directly into
your retirement account. It is difficult and sometimes
impossible to retrieve money from your retirement account while
working for that employer so this is a great savings tool for
those who have a hard time setting aside money. Workplace
savings also is good as it lowers your overall tax burden for
the year, giving you even more savings.
Automatic Increases
The last way to help increase your savings is to use an
automatic increase program on your workplace savings plan. Not
all employers offer this; contact your human resources or
benefits department to see if it is an option. These programs
facilitate saving for retirement by automatically increasing
your retirement savings each year. You generally choose what
percent you want to increase the savings by as well as the date.
When the chosen date comes, a larger percentage of your paycheck
starts going into your workplace savings account. You can have
it take effect right after annual salary increases each year
making it less noticeable in your take-home pay.
If saving money isn't one of your stronger qualities, these
savings programs can help. Savings is the best way to avoid
financial ruin. Having money set aside for an emergency, job
loss, car and home repairs, or any unexpected expenses prevents
you from having to take loans to cover these problems. In
addition to liquid savings, retirement savings and college
savings are long-term goals that often get overlooked or
procrastinated. Taking advantage of one or several options from
above is the first step in creating a healthy financial future
for you and your family.
About the author:
Emma Snow is a writer who specializes in financial planning. She
has worked in the financial industry for over eight years.
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