3 Steps To Automate Your Way To Financial Wellness

There is something intriguing about having a domesticated robot like C-3PO (Star Wars), Number 5 (Short Circuit), or Wall-E (Wall-E) to help with everyday tasks that while important are hard to find time to complete. Today our cell phones notify us with the time it will take to get home, refrigerators send us shopping lists (that is if no one is shopping for you) vacuums clean our homes, cars park themselves and it seems as though one day they will all drive themselves. In this day of helpful technology here are three simple tools to automate your finance.

Auto Increase: Auto Increase can help you reach your retirement savings goals without breaking the bank. It’s essential for most people to save at least 15% of their gross income for retirement, however, this can be difficult. If saving 15% is inconceivable, start small and use automation to help. Some retirement plans allow you to set up an annual increase of your contribution percentage. Increasing your savings rate by just 1 percent each year can have a powerful impact on your retirement balance.

Example: A 35yr old with an annual income of $50k begins saving 5% into her 401k by age 65 she can expect to have a balance of $335k. Now if she were to set up an annual auto increase of 1% she could increase her retirement balance to over $825k.

A 1% auto increase can add almost $490k to your retirement balance!!!

Source: dinkytown.net

Source: dinkytown.net

Hint: Set up your auto-escalation to coincide with the time period you typically get a pay increase. This strategy will help decrease the impact on your bank account.

Auto Rebalance: Setting up auto rebalance can help you avoid unnecessary risk in changing markets. With stocks up 13.57% and bonds up 2.59% annualized over the last 5 years (see graph), you could be taking on some additional risk with an out of balance retirement account. Automating your account or taking the time once a year to rebalance your portfolio can help disperse some of this risk.

Example: Say five years ago an individual had $20,000 in their retirement plan and purposely invested 50% of their portfolio in stocks and the other 50% in bonds, a 50/50 ratio. Over the last 5 years, this account would have grown by 51% to over $30k. In the short period, the purposeful 50/50 portfolio would now be a 62/38 ratio of stock to bonds. This change in the stock/bond ratio can alter the individual’s portfolio and add additional risk.

The graph below highlights the growth of $10,000 invested in the Vanguard Total Stock Market Index Fund Admiral (VTSAX) compared to the growth of the Vanguard Total Bond Market Index Fund Admiral (VBTLX) from August 2013 until August 2018. $10,000 invested in stocks (VTSAX) would have grown to almost $19,000 while $10,000 in a bond fund (VBTLX) would have grown to just over $11,000.

Source: Morningstar.com

Source: Morningstar.com

Automate your Emergency Reserve: American’s now have more credit-card debt than ever, passing the $1 Trillion mark, paying an average of 17.03% interest. To help avoid being stifled by such expensive debt it is important to build an emergency reserve. Building an emergency reserve of at least 6 months of your income can help keep you on track when unexpected expenses come up. Banks’ digital presence makes it easier than ever to automate saving. Rather than waiting to the end of each month to see what’s left over, if you know you get paid on the 1st of the month set up an automatic transfer to your emergency reserve on the 2nd day of the month. Setting up the automatic transfer helps force yourself to be more strategic with your dollars.

Conclusion: Whether you are wary of robots taking over or are excited to pawn off the mundane (like these robots that open doors), taking a few minutes to set yourself up for success can point you and your family in the direction of financial wellness.  

And while Artificial Intelligence can help with much, it can never replace the value of a face-to-face interaction. At Human Investing, our team of world-class humans aim to serve your pursuit of a fuller life with tailored financial planning and advice. This goes beyond the “nuts and bolts” of investing and financial planning and into the heart of why we do what we do.

Will Kellar