Automate your savings to achieve your financial goals 3rd January 2022 3rd January 2022 Financial Wellbeing, Saving and Investing investing, Saving Because we all have different financial personalities, savings money doesn’t come naturally to everyone. But we all have financial goals, and this is where automation can really help. By automating your savings, you can convert regular deposits into a powerful way of building a pool of money before you get a chance to spend it. In turn, you’ll be: – Saving time (no more manual transfers) – Contributing consistently (maximizing the power of compound interest) – Paying down debt faster (a little really does go a long way) Many financial institutions provide a mix of tools that can help you save money, budget better or invest regularly all with the convenience of automation. The following are some of the easiest ways to save, grow your money and reach your personal financial goals faster. Automated payroll deductions – these let you set an amount of money than can be directed into any number of nominated accounts, including accounts set up specifically to save or invest. In effect, this route means the individual is paying themselves first which can be especially important if they tend to have spending-type personalities as it means their net pay is reduced before they have an opportunity to spend it. To begin, you’ll need to talk with a payroll or HR contact at your employer. Automating long-term savings goals – for some people, long-term financial planning can be significantly enhanced by participating in their employer’s occupational pension scheme and increasing contributions by way of additional voluntary contributions (AVC).The advantage of this option is the deductions attract generous tax relief on gross income which means that as individuals make contributions, their gross pay is reduced and so is the amount of income tax they pay. Plus, over time, any interest earned on investment returns are tax-free which means that compound interest growth is accelerated enormously. This automated option is one of the best Irish workers can access presently. Direct debits / standing orders – it’s possible to set up a direct debit / standing order to overpay a mortgage on a regular basis. This option can work wonders if someone is paying a high rate of interest on their mortgage. However, there are some rules to keep in mind. While it is possible to ‘overpay’ a variable rate mortgage (including a tracker variable), there are limits on how much a fixed-rate mortgage can be overpaid by – generally 10% or a fixed monetary amount. If we take the example of someone with an outstanding mortgage balance of €150,000, rate of interest is 3.5% and a monthly payment of €1,072. By overpaying their mortgage by an extra €500 per month, they would save €16,979 and reduce the remaining term on the loan by 5 years and 8 months. But since all mortgages are not equal, if the loan is a tracker mortgage costing 1.1%, the overpayment would yield significantly lower savings. In this example, the amount saved would fall to €4,850 while the loan term would reduce by 5 years 7 months. By automating your savings options, you’ll not only be saving time and maximising the effect of compound interest, but you’ll also feel good knowing you’re on track to achieve your financial goals. Get Your Financial Skills Score Share this:SharePrintFacebookEmailWhatsAppLinkedInTwitter
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