Here’s the thing: growing your nest egg doesn’t have to be complicated.
Sure, you could surf the internet for hours, scouring countless articles for the hottest tips and tricks for maximizing wealth. I’m sure you’d find a few handy nuggets of wisdom. But sometimes the simplest steps can make the greatest impact of all.
When it comes to building long-term wealth, arguably the most important thing you can do is automate your personal finances — and your investments, especially. Setting up recurring investments keeps you on track and ensures you never miss an opportunity to invest in your future.
Here’s what you need to know.
What are recurring investments?
Recurring investments allow you to automate your finances by scheduling deposits to your investment accounts in advance. For example, if you want to invest $400 every month or $100 every week, you may want to create a recurring investment. That way, without thinking, planning or submitting the deposits manually, money will automatically flow into your account or portfolio on the date of your choice.
Why are recurring investments so important?
Recurring investments (and automation, in general) allow you get out of your own way.
Think of it like our diet. Even though we understand the benefits of a healthy diet and the consequences of poor food choices, we somehow end up eating McDonald’s Tuesday night, five donuts at the office Thursday morning, and ordering a pizza Friday night. Temptation gets in the way, and we often the lack self-control and self-discipline and resist — we’re only human, after all. While we understand that making a salad is better for our long-term health than eating at McDonald’s, in the moment, we are hungry, we’ve had a long day, and the threat of bad blood pressure in our old age is trumped by our desire for french fries.
If we had to choose every meal for the upcoming week on Sunday night, however, we would probably choose balanced meals to ensure we make nutritious choices in the future. If past us always planned the diet for future us, we would likely all be healthier, because we wouldn’t even have the option to give in to temptations and cravings.
Our finances are really no different. If past us could make all financial decisions for future us, we would all save more money. Though we all understand that we should simply save more and spend less, we are only human, and our daily desires to consume interferes with our long-term goals.
That’s why automation serves such an important role in keeping us on track. Setting a recurring investment schedule forces you to opt out of making a smart financial decision rather than opt in. This helps remove temptation to skimp on contributions, and guarantees you’re always investing in your future — not just when you when you happen to feel like it. After all, you’ll rarely feel like forking over $400 to an account you may not touch for years, especially when saving for retirement.
So rather than confronting the same difficult decision weekly or monthly — spend or save? — your money will be automatically flow into your portfolio. Think about it: by automating your finances with recurring investments, you’re constantly progressing toward a major life goal, and it doesn’t even require an ounce of effort aside from the initial setup. Even then, setting up recurring investments can take as little as 30 seconds, depending on the platform (and not to brag, but we make it pretty dang easy). What other wealth building “tip” can be implemented that quickly and yet make such a significant long-term impact on your financial health?
When should you set up recurring investments?
Recurring investments are ideal for nearly all your financial goals because they make contributions to your future a habit. Before you commit to a funding schedule, however, you may want to set aside time to organize a budget. Consider how much you’ll need to set aside with recurring investments to meet your goals, and work backwards from there.
Building your budget around your financial goals, rather than the other way around, can limit superfluous spending and help you reach your goals sooner. You know how goldfish grow to the size of their bowls? Well, humans spend to the size of their budget. By factoring in recurring investments upfront, you’ll shrink the amount leftover for spending, requiring you to be more resourceful and responsible with the remaining money. Forcing yourself into a tighter budget and paying yourself for the future first can yield major dividends in the long run.
How to get started.
Once you’re ready to automate your investments or IRA contributions, M1 makes setting up recurring investments a breeze. Plus, unlike traditional brokerages, we never charge commissions on deposits and withdrawals, meaning you won’t pay a penny on your deposits. Visit our Automation page to learn more about Recurring Investments or check out our Earn More page to calculate how much you can earn by automating your investments.
So whether you’re just beginning to build your nest egg or regularly socking money away already, consider setting up recurring investments to crank your finances up a notch.
Member of SIPC. Securities in your account protected up to $500,000. SIPC insurance does not protect against loss in the market value of securities. For additional information visit www.sipc.org. Securities and services are provided to clients of M1 by M1 Finance Inc., member FINRA/SIPC. Investments are not FDIC insured and may lose value. Investing in securities involves risk, and there is always the potential of losing money when you invest in securities. Please consider your objectives and possible fees before investing. Past performance is not a guarantee of future results. Diversification is not a guarantee of positive performance. Please note that investments in an IRA may have tax consequences if there are withdrawals before age 59 and 1/2. This is not an offer, solicitation of an offer, or advice to buy or sell securities in jurisdiction where M1 Finance Inc. is not registered.