Saving and Investing on Autopilot
For all these years on our journey to financial independence, we have tried a number of different ways in order to facilitate our saving and investing. Among different approaches we took, the method that we found most effective is automation. From paying bills, sending money to savings account, to buying stocks and mutual funds, we pretty much put everything on autopilot. Among the benefits of automating everything, the biggest one, as we noticed, is that it makes our life much easier. With so many bills to pay and investments to make every month, it would be a big headache if we had to do everything manually. By taking the automatic approach, we know not only that we will not pay any financial charge since all the bills will be paid in full before deadlines, but also that we invest whether the market goes up or down.
Though I own many credit cards (the number of active accounts has shrunk dramatically in recently years though as I haven’t applied for new cards in years and closed a few that I no longer need), we only had three with balances on them at the end of last month, AMEX Costco TrueEarnings Card, Fidelity 529 Card, and Chase Amazon Card that we use only occasionally. By reducing the number of cards we use, we also lower the risk of forgetting to pay the bills.
For those credit cards with balances, I have arranged their due dates to be within the first ten days of the month. What’s good about having credit card bills due around the same time is that, since credit card bills account for the majority of our spending every month, we know when we can move money out of our checking account, which pays the bills but doesn’t earn nothing, to savings account. With all investments also made at the beginning of the month, which I will discuss later, we are pretty safe to direct money elsewhere in the second half of the month.
In addition, we also pay utility bills, like cable, electricity, gas, and phone, each month through direct withdrawals. Unlike credit card bills, the due dates of utility bills are not concentrated in a certain period. However, since the amounts are relatively low, they don’t affect too much on how we move the money between bank accounts. Of course, the mortgage payment is always made on the first day of the month, through its automatic payment plan with the lender.
BTW, reducing the number of cards that carry balances also improves my credit score.
Investing in Stocks and Mutual Funds
When it comes to investing in the stock market, our preferred approach is set and forget. As I mentioned earlier in another post, we have been through two stock market crushes, one in 2001 – 2002 and one in 2008 – 2009. During those tough times, we kept investing in the market even though sometimes by adding more money into the stock market, we saw our losses get bigger and bigger. Now looking back, I know we have benefited greatly from those investments made early.
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I own a number of individual stocks in brokerage accounts at Scottrade and TradeKing, but most of those purchases were one-time events with no follow-up investments after the initial purchases. I do, however, have a few dividend-paying stocks, such as PG, BAC, PNG, XOM, BXP, that I buy every month at ComputerShare. For these stocks, additional shares are purchased automatically on the 5th of every month, the same day that I also buy additional shares of seven out of ten mutual funds I own and make contributions to two 529 accounts at VEST. The 5th of the month doesn’t really hold anything special. It is more of a continuation of how I set up the automatic investments in the early days when online banking and investing were not as popular and convenient as today. Choosing the 5th day of the month was just to make sure that our paychecks were cleared at the bank when the purchases were scheduled to occur.
Transferring Money to Savings Account
After all the bills are paid and investments are made, we transfer any excessive money in our BofA checking account to savings account at Sallie Mae Bank to earn a little bit more. But that’s just the manual part. Since both my wife and I are on bi-weekly salary payment schedule, I also set up an automatic savings plan with the bank to make recursive transfers every two weeks. Because these transfers are automatic and one of them occurs at the beginning of the month before bill payments and investments, I have to set the transfer amount relatively small to only $500, just to make sure nothing unexpected happens. In the second of half of the month, we usually keep about $3K to $4K in the account and transfer whatever after that to savings account.
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When I first started to use scheduled transfer at a different bank a while ago, the amount sent to savings account was set at only $100. Over the years, the amount has been gradually increased as we kept assessing our situations after all obligations were met. Since adopting the automatic transfer plan, we seldom needed to transfer money back to the checking account.
So far, this approach has served us well. I initially had reservations about giving our bank information to credit card issuers and utility providers initially because I was worried about giving them too much control on payments. But that concern eased over time as no incident has occurred and we are quite happy with how things are going right now.
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