4 Ways Automation Can Make You A Better Investor

You already know that automation is a powerful tool in accelerating your journey to Financial Freedom. But did you know that automation can make you a better investor?

You may already be using automation successfully with the bank accounts in your Perfect Account Structure. In that structure, you decide in advance how to allocate money to your Pay Yourself First Account, your Everyday account, your goal accounts and more.

But there are even more areas of your finances that you can set on autopilot. Today we’re expanding our idea of what Automation is. We’re showing you four ways you can use the power of automation to make reaching your financial goals faster and easier!


1. Automate Your Income Generator Investments

If you’re in the process of building up your Freedom Generator, then one of your top priorities is feeding your Income Generator. To reach Financial Freedom, you need to follow through regularly with your commitment to fund this critical Freedom Generator bucket.

But moving money around takes time and requires setting reminders for yourself every month or pay period. Automation can help you here with a simple, four-step process:

  1. Set up an automatic transfer within your bank accounts. Schedule a monthly or twice-monthly transfer of funds from your savings account to a checking account.
  2. Connect your brokerage account to your checking account. Log in to your investments account online and update your profile to connect it to your bank account. (You may need to complete a verification process to complete the link setup.)
  3. Set up an automatic investment in your brokerage account. Log in to your investments account online and request that your desired investment amount be pulled from your checking account at least one day after the automatic bank transfer you set up in Step 1.
  4. Use the money to purchase your desired assets each month. If you use a robo-advisor, it may be able to handle the purchase of assets automatically with your automatic investment. Likewise, a financial advisor or human broker may handle this step. If you’re on your own, you may need to go manual here and purchase the assets yourself.

2. Automate Your Growth Engine Investments

Working to build up your Growth Engine? You can automate your investments there as well! In fact, your Growth Engine may comprise two types of accounts that can benefit from automatic investments:

  • Your employer-sponsored retirement accounts: Got a 401(k), 403(b) or other retirement account that’s offered through your workplace? Talk with your human resources representative about how you can set up an automatic transfer from each paycheck to your account. You’ll be able to specify what percentage of each check will be earmarked for retirement, and your employer will track your contributions.
  • Your own retirement accounts: If you’ve opened an IRA, Roth IRA, SEP IRA or other retirement account through a brokerage firm, it’s easy to automate your retirement contributions. Simply follow the steps on automating your Income Generator investments above.

3. Automate Your Reinvestments

When you choose quality assets for your Income Generator and your Growth Engine, you’ll see regular returns on your investments in the form of quarterly dividends. But did you know that without some intervention on your part, those dividends will likely wind up sitting in your broker’s cash account earning next to nothing in interest?

The compounding effect is essential in strategically and quickly building up your Freedom Generator. So don’t let those dividends languish when you could be putting them to work! Instead, reinvest them as soon as they’re paid out to you.

Doing that manually can be a huge pain . . . and something that it’s easy to forget. So set up automatic reinvestment of your dividends, and you never have to think about it again:

  • If you have a financial advisor or broker, he likely includes dividend reinvestment in his service offerings. Check to make sure that you’re receiving that benefit and sign up if you’re not.
  • If you use a robo-advisor, your helpful bot probably handles automatic reinvestments. Again, check in with your bot to ensure that feature is enabled.
  • If you manage your investments on your own, your brokerage account may well offer a free dividend reinvestment plan (or DRIP). TD Ameritrade, Fidelity and Carles Schwab are just a few of the firms that already offer DRIP services. Signing up usually takes no more than a few mouse clicks in your online account.

4. Automate Your Tax Savings

Looking to save on next year’s taxes while using pre-tax money to pay for necessary expenses? Automation can help you when you contribute to tax-sheltered investment accounts:

  • FSAs, HSAs or other health savings accounts: You can pay for qualified medical expenses and reduce your taxable income by contributing to your employer-sponsored health savings account. Simply sign up during your benefits enrollment period and set up an automatic paycheck deduction for the amount you wish to transfer.
  • Dependent care accounts: A set portion of your childcare costs may be eligible for tax savings when you contribute to an employer-sponsored dependent care account. Just as with an FSA, sign up during your enrollment period and specify your desired automatic account contribution.
  • Educational savings plans: If you’re saving up for your child’s or your own education, you may have chosen to participate in a 529 plan, Coverdell ESA account or similar savings plan. These plans are typically administered through the government or a brokerage firm and allow you to set up automatic contributions from your bank account.

Community Question: Ready to accelerate your journey to Freedom? How have you used automation to keep your finances healthy and your money growing? Tell us in the Financial Foundations community!



image credit: Bigstock/Sergey Nivens


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