It's not finding the next hot stock, inheriting a windfall, or getting a gig as a tech CEO. The #1 thing you can do right now to increase your net worth is to automate your savings. By paying yourself first, you are much more likely to hit your financial goals, compared to those who only save if there is money left over at the end of each month or year.

Savings could mean adding money to a retirement account like a 401k or IRA, a regular investment or bank savings account, a 529 college savings account or even a permanent life insurance policy.

Matt Becker from the Mom and Dad Money blog details the four reasons why this strategy is so successful.

It's purposeful - You set your goals and put your money to work achieving them. You're directing your money to do what you want rather than reacting to whatever you have left over at the end of the month. This is the very essence of taking control of your financial future.

It's easy - You set up your automatic transactions once and your job is done (see below for a how-to). No more remembering. No more worrying. It just happens. The only time you'll have to think about it again is when you get a raise and want to increase you contributions.

It's consistent - The most powerful tool you have in your savings arsenal is the ability to save early and often. This approach GUARANTEES that you'll stick to a consistent saving schedule, meaning you'll automatically be increasing your wealth month after month. It's that kind of consistent repetition that produces BIG long-term results.

It's guilt-free - Maybe best of all, it frees you up from the daily guilt and stress that comes from having to second-guess all of your spending decisions. Because your savings goals have already been automatically handled, you don't have to worry about whether your impulse decision to pick up that candy bar on the way out of the grocery store will hurt your long-term plan. If the money's still in your checking account, you can spend it guilt-free!

Here are a couple of easy ways that you can set up the automation.

Set up direct deposit with your employer. Most employers will accept multiple deposit accounts.

If your employer doesn't accept multiple deposit accounts set up a recurring transfer on your pay day. Most of the time this can be set up even if your checking account and the account you are saving into are held at different financial institutions.

If those two aren't available you can always use your banks online bill pay to send a recurring check to your investment account every month

The principle of "paying yourself first" has been enshrined in every major personal finance book since 1926, when George Samuel Clason published The Richest Man in Babylon. It's the single most powerful message in David Chilton's bestseller, The Wealthy Barber. It takes a little time to set everything up to be on autopilot, but once everything is running it can pay off for years to come.

Despite current losses in the U.S. stock market, a new study shows a clear trend of favorable annual returns in the past 80 years.  From 1926 to 2015, investors have seen 65 years of positive annual returns compared to 24 years of negative annual returns reports Abbott Associates.  Further, averages for positive annual returns (21.47%) have topped negative annual returns (-14.29%)

 

Historically stocks have performed well when compared to other financial assets, and have typically outpaced inflation.

Please contact me regarding any of the articles above, or if you would like to discuss your personal or business finances