FINANCIAL PLANNING TIDBITS: AN EASY-TO-KEEP NEW YEAR'S RESOLUTION
SUMMARY
This set-it-and-forget-it strategy can help you achieve your savings goals this year.
“I MEAN IT THIS TIME”
If you’re anything like me, you welcome the Gregorian calendar’s annual milestone with unfettered ambition and carefully considered aspirations. Similarly, if you’re like me, those resolutions deflate by the end of the first or second week for one reason or another. It’s typically challenging enough in the first couple of months just to remember to write the correct year when I date paperwork!
The American Psychological Association estimates that 92% of Americans make a financial new year’s resolution. If you’re one whose resolutions include increasing your savings for retirement or something special, like a house, travel, or college, there’s a quick and simple—but often overlooked—way to set yourself up for success.
SET IT AND FORGET IT
“Out of sight, out of mind” may be the last thing you want to associate with your money, but I’m here to tell you that the grand secret to savings goals is a convenient form of it: automated savings. If you have an employer-sponsored plan such as a 401(k), you’re probably already familiar with having a portion of your paycheck automatically withheld for contributions to the plan. But automated savings also work for other account types, such as transferring money from a checking or savings account to an IRA, investment account, or 529 plan. You can even set your money up to funnel to a high-yield savings account. It’s as simple as figuring out your cash flow needs in a given month, determining your savings goal and timeline, and then setting up an automatic transfer from your bank account to your savings vehicle of choice. Set it up and boom: done. You’re on track to complete your year’s goal without having to think about it again.
Setting up a recurring contribution can avoid the hassle of arranging individual transfers and hedge the risk of forgetting to move money in the first place (historically a particular failing of yours truly). It makes it possible to contribute a set amount without requiring that you already have the lump-sum on hand—very important when you’re managing cash flow. Furthermore, for gifts to others, such as to a 529 account for a child or grandchild, contributing over the course of the year means you’re not missing out on your annual gift tax exclusion amount ($17,000 in 2023). To set up an automated contribution or deposit to your Schwab or Raymond James account with Day Hagan, you need only provide a voided check or statement for the bank account from which you will be making the deposits and let us know how much and how often you want to transfer funds (weekly, monthly, quarterly, yearly).
PAY YOURSELF FIRST
Nothing I’ve written here is revolutionary—compelling as it is for nerds like me, personal finance is rarely glamorous. But setting up an automatic deposit is one of those chores that I myself have been guilty of delaying for one reason or another. By making a point to proactively direct your money, you can focus on following through on your other goals, like still showing up to the gym once February rolls around!
Have a very happy, productive start to the New Year!
Natalie Brown, CFP®
Director of Client Services & Financial Planning
Day Hagan Private Wealth
—Written 12.22.2022.
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