Why you should contribute to retirement accounts every week
For the vast majority of us, we manage our finances on a monthly basis. We receive bills monthly, pay those bills, and continue the cycle. It’s a part of adult life. The vast majority of us also include in our monthly expenses subscription services such as Spotify, Netflix or Hulu. The signup process for these services is seamless and easy. You put in your contact information, state the exact service level you want, and put in your credit card information. Voila! You’re now immediately listening to the new School Boy Q, or binging The Handmaid’s Tale. And the monthly charge for this happens like magic without you even noticing.
What if you could setup your retirement, education and other investment accounts this same way? Where you really don’t even notice the money coming out? Companies like Betterment and Wealthport are allowing clients to do just that. Making it seamless and easy to open accounts and contribute to them on your terms. It’s as easy as picking a goal, linking up a bank account, and deciding what day(s) you want to contribute. Weekly & Bi-Weekly contribution options are now the new normal. I’m a huge fan of having clients contribute weekly to their stated investment goals! Why? Because psychologically even though we try and think of our financial lives monthly, we actually live them weekly. Let me explain:
Say that you’ve been wanting to contribute to a Roth IRA for awhile now, but the whole $6,000 a year contribution limit just sounds like a ton of money between rent/mortgage, the new car payment, and eating out with friends. Furthermore, if we break this down monthly that’s a whopping $500 a month contribution! Now, as a Financial Planner I can tell you all day that this shouldn’t feel like an expense. It’s going to Retirement! Woohoo! But let’s be real, that $500 a month feels more like a second car payment, than a contribution to your future self sipping Mai Thai’s on some beach in Florida 30 years from now.
But what if I asked you to contribute $115.38/week? Doesn’t sound so bad right? As a matter of fact, most people tell me it actually sparks a mental challenge in them. “Where can I cut back to figure out how to find $115.38/week?” But even if you can’t do $115.48/week, do half. That’s $57.74/week. That’s skipping out once a week on dinner with friends. And let’s face it, you’re probably doing dinner with friends 2-3 times a week already…you can stand to miss out just once.
So since investing is pretty boring, let’s make the process just a tad bit fun. Having a game with yourself on a weekly basis where you figure out how to save more is the #1 place to start in my opinion. “Just start and Just save” is what I tell people all the time. Don’t get bogged down with investment selections because that will just discourage you and will lead to inaction. A number of online robo-advisors can handle this process for you, for a fee. Let them do it. Take their quick survey, tell them when you’ll need access to the money and link up a bank account. If you didn’t notice, this process is surprisingly similar to signing up for Netflix. So go ahead, have fun and binge on figuring out how to squeeze more out of your bank account and save for your future self.