It’s easy to fall into financial habits. Even people who consider themselves inflexible can grow accustomed to a financial change after time. That’s the beauty of automation — an automatic 10 percent transfer to a high-yield savings account every time you receive a paycheck eventually becomes painless.
Habits aren’t always perfect; just as you adjust to your surroundings, it’s easy to forget the situation that inspired the habit, or even worse, that the automated transfer is even there. I suppose it’s easier for things to get lost when you have 60 or more financial accounts like me rather than fewer than ten like most normal people. (I have so many because I continually open new accounts of various types to review for Consumerism Commentary; without this website, I wouldn’t be such a collector.)
I’m making a few changes to my habits.
First, I have been using SmartyPig as a goal-oriented savings mechanism. Every other week, coordinated with my paycheck, $170 has been automatically withdrawn from my ING Direct checking account and deposited into my SmartyPig account. My plan when initiating the automatic transfer was to set aside money for a new digital camera, but since then I’ve decided I’m fine with my current equipment, which admittedly has expanded otherwise since initiating the savings goal, and I probably won’t buy a new camera for another year.
Now that the goal is complete, SmartyPig has stopped the automatic transfers.
I’m in the process of changing my method of dealing with charitable contributions. In the past, I’ve given to charity towards the end of the year. Last year, I matched Consumerism Commentary readers’ charitable donations for Thanksgiving in addition to giving independently to a few of my favorite causes, and I might do the same this year. I’m stepping up my charitable involvement by adding an automatic monthly contribution to my charitable gift fund which I will then use to grant donations to organizations as needed.
The disadvantage of using a charitable gift fund is my employer will not match funds. To have a bigger effect on an organization, as long as I am employed, I usually give directly the charity and submit the paperwork for my employer to match.
One of the biggest factors for me in growing wealth for retirement is the SEP IRA. Self-employed individuals can enjoy a high maximum on tax-deferred growth, and anyone can be self-employed to an extent. In the past, I’ve waited until tax time to fund each year’s SEP IRA, but now I’ll be making an automatic contribution of $1,750 on a monthly basis.
Still for me to consider is whether I should begin investing in a fund for a theoretical future child’s education. The tax benefits are helpful, but there’s no guarantee I’ll ever have children. The penalty for not using funds for educational purposes is steep, so although I may be missing out on some gains, I think I’d rather wait until I know children are in my future.