When it comes to achieving your financial goals, whether it be funding a retirement account, savings, or reducing your debt, the (often overlooked) key to success can be as simple as automation.
For most Americans, the 401K is the cornerstone of their entire retirement. One of the reasons that 401K’s have become so popular is that they are funded by automation. X percent or X amount of dollars is taken out of each pay check to fund the 401K. Most companies have an employer match, which is a big plus, but the real reason these accounts work for most people is due to the automation of it. You never “see” the money, so you don’t spend it.
Two major players in the banking world, Wachovia and Bank of America have both created programs in the last few years which exploit this fact (to help clients build their savings). Bank of America has a program called “Keep the Change” which will round your debit card purchase to the next dollar and deposit the change in your savings account. Wachovia’s program, called “Way 2 Save” will transfer $1 automatically from your checking to savings account for each purchase made from your checking account. While I believe these programs are good for the average joe, it is the combination of several automated systems in your financial picture over a long period of time that will ultimately lead to solid results.
One of my favorite automated savings system comes from American Express. They have a card called “One” which deposits 1% of your spending into a high yield savings account. Now, obviously 1% is not a lot of money, but the fact that it is completely automated is worth so much. I opened this card up 3 years ago and did not pay attention to the cash value accumulating in my American Express high yield savings. I just recently checked on it and had just shy of $1,000 sitting there. Not a ton of money, but a pleasant surprise nonetheless.
So now we’ve looked at automation from a saving & investing standpoint. Lets turn the tables and look at the other side of the balance sheet: Automation as it pertains to debt. If we can take these same automation principles and apply them to eliminating & reducing debt, the results should be just as stellar.
The concept is simple: Allocate X number of dollars to automatically go towards an additional principal payment on one of your debts, while making minimums on the others. Once that debt is eliminated, take the additional principal, as well as the minimum payment from that debt, and apply it to the next one in line. Repeat this process until all debts are gone. Sounds easy, but the truth is that less than 3% of people who try to eliminate their debt on their own using this mathematically sound method actually succeed. The reason for the 97% failure rate? Human Psychology and Interaction. The moment that the money is “seen” as able to be spent, emotions kick in. Unfortunately, “just one month” getting off track with a system built on consistency will ultimately lead to failure in an overwhelming majority of cases. Generally, Humans are not disciplined, especially when it comes to our money & finances.
A system like this cannot work unless it is 100% completely automated and works day in, day out, month after month, year after year. Luckily there are some unique debt management & payment administration companies who offer these type of programs and they boast a success rate of over 95%. These are the companies who I endorse and have aligned myself with for the benefit of my clients.
Your FICO score also benefits along the way…as each debt is knocked out, your balance to limit ratio gets lower (providing you do NOT close the paid-off account). One of the best parts is that once all the debt is gone, that same money can then be re-allocated to fund a retirement portfolio, insurance products, or any other account you desire. The type of instrument you choose to fund is not as important as the automation and consistency of it.
Curious if an automated debt & wealth creation system can work for you? Fill out my Free Debt Melt Down Analysis form and I will crunch the numbers to see how much money a system like this could save you, and how much wealth it could create for you down the road. As always, if you have any questions feel free to call my office at 1-888-456-5635.
Remember, nothing happens until something moves!