Financial Quick Tip: How Automating Your Finances Can Increase Your Wealth

By August 6, 2018 No Comments
Quick Tips

Automate Your Way To Better Financial Habits, And A Larger Nest Egg

Are you ever anxious at the thought of not having enough money saved in the event of a sudden emergency?

If so, you probably are not alone, as a recent study found that less than half of Americans have enough in their savings accounts to cover an emergency expense of $1,000.

That may sound surprising, as the official poverty rate in the U.S. sits around 12.7 percent and the poor in America would largely be considered middle or upper-middle income when compared to the rest of the world.

So if the lack of savings is not only due to poverty, then what is going on and how can one get their finances in order?

Why Most People Do Not Save or Invest Enough

There are a number of reasons why individuals find it difficult to put in place a disciplined approach to saving earned income. Such reasons include:

Lack of Financial Literacy

Put simply, financial literacy among the adult population is not nearly as ubiquitous as it should be.

For example, all Americans should be aware of the power of compound interest, which illustrates the tremendous growth potential of interest-bearing investments over time. However, a recent study out of George Washington University found that only roughly 65 percent of individuals could answer a basic question involving the concept.

Decision Paralysis and F.O.B.O.

Even when properly educated on financial matters, the prevalence of “Decision Paralysis” is another reason why many have trouble getting started in making responsible savings and investment decisions.

With so many financial products and savings schemes available, it’s easy to become overwhelmed and consequently paralyzed by the fear of choosing one option while leaving a better one on the table.

This phenomenon has been dubbed F.O.B.O. (Fear Of Better Alternatives) and must be overcome in order to get started with a savings and investment plan in the first place.

Poor Savings Account Design

Complicated online banking interfaces also pose barriers for those who would like to save but are having difficulty getting started.

Often, paychecks are automatically deposited into a checking account, which requires a further step on the part of an individual to not only set up a savings account but to manually transfer funds at some flat amount from the default account.

The Solution: Make Saving Easy

Automating your savings decisions is the best way to break out of decision-making paralysis and follow through on your desired saving and investment goals. This requires that you first clearly define your savings goals and decide on a savings rate that is most appropriate for you.

Even though many financial institutions operating today allow you to set up an automatic transfer between accounts, they are rarely promoted by the bank and are often unnecessarily difficult to understand and set up for individuals with little experience. Buried behind multiple menu options and lacking the flexibility necessary to accommodate those with variable or uncertain incomes, it is no wonder that so many Americans simply choose to avoid the complication altogether.

At CNote we have made it easy to set a monthly recurring deposit. That way you can save more of your extra cash and avoid those aforementioned psychological barriers to taking a more proactive approach to your savings and investment decisions.

Conclusion

Making the decision to save money may be more difficult than one might think thanks to the psychological barriers ready to ensnare unsuspecting first-time savers, but it can be done by automating savings and investment decisions and is one of the most effective ways to set yourself up for long-term wealth accumulation.

In addition, your future self will thank your current self for setting up a savings plan that built a solid emergency fund or helped build a chunk of cash so you could afford a down payment on a better home.

There’s a saying:

“The best time to plant a tree was 20 years ago. The second best time is now.”

The same is true with your savings and retirement, if you haven’t started, that’s OK. But don’t wait any longer if you can avoid it. Hopefully, being aware of the pitfalls listed above and automating your savings and investment decisions should put you in a stronger financial position going forward.

Note: CNote is not a registered investment advisor, and this information should not be relied upon as individualized investment advice. Every financial situation is different and you should seek tailored advice to suit your specific financial circumstances. 

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