Finding or Adding Cash to Your Retirement
Finding cash to invest can be a challenge. There are strategies that can help, and I cover this in my book, Investing Guide for Retirement”, but let me elaborate a bit.
Many pundits say you just need to give up “small” things every day or week and that will give you more cash. But those who drink a cup of latte every morning on the way to work depend on that drink to get them going, so while eliminating the latte may put a few bucks in the wallet, it may also affect your daily performance the wrong way.
Many years ago I heard the phrase pay yourself first and it has been repeated in articles on a consistent basis. Easier said than done, I told myself every time I heard it. But it works. Here are my suggestions:
- Use an online, internet based savings account.
- Take advantage of an employer based retirement account.
- Open a regular savings account at a nearby credit union or bank.
Don’t throw your arms up in exasperation because you’ve heard this before. The following method does.
The critical factor of gathering cash for investment is it has to be specifically aimed at putting together money for investing. The savings account is a temporary parking place for your money because while it may grow in value, the interest earnings are minor.
Generally speaking, an online savings account will earn substantially more money than at a bank and even more than at most credit unions. Today one of my online savings accounts is paying 1.2 percent while my friend’s credit union account is only paying 0.02 percent.
Depending upon whether you want to invest in stocks, ETFS, or mutual funds you need $100 to $2,500 to get going. The brokerage you choose sets the minimum and the type of investment. Additional investments, once you have an account open, are best made in increments of no less than $500.
For this reason the savings account should be dedicated to accumulating dollars for your retirement years. In other words, it is a separate savings account from any other account you may have. You can do this by starting out very slowly and building. The key is to set the investment retirement account up for automatic deduction from your checking account into a high interest paying savings account. Let’s say you make $30,000 a year and your net take home pay is $850 every two weeks or about $1,700 a month. Start with an automatic deduction that is equal to 1 percent of your take home pay; in this case $17. You won’t even notice it.
After two or three months change your automatic deduction to 2 percent; in this case $34 and again, because you will only be taking out another $17 from your checking account every month than what you’re used to, you won’t miss it. If you get paid every two weeks you could set up the deduction for twice a month, in this case just $8.50 to start. Every three months increase your automatic deduction. Try to get it up to 10 percent or even better 15 percent.
Follow this formula and you will be amazed at how your funds will grow and your retirement account in the market will then mushroom.