Often students ask me what one thing I recommend they do in order to begin to get their financial house in order. Although the first thing I tell them is to put together a personal financial statement as a starting point, if I had to pick one thing that will get them started on the right foot is to set up an automatic savings plan.
It is quite simple, really, and many banks have special programs just for students. But in order to get the best return on your investment and outpace inflation, a bank savings account is not the best choice, certainly at least not now. A smarter move would be to set up an automatic investment plan (AIP) with your investment bank (Charles Schwab, Merrill Lynch, Edward Jones, etc.). Setting up an AIP simply means that you are authorizing your brokerage firm to transfer a set amount each month from your checking account – $20, $50 – whatever you can afford.
This approach has several key advantages. First, it allows you to observe my favorite rule of investing – “pay yourself first”. Second, just as I often complain about what I call “unconscious spending” in the form of bank fees of all kinds, here is a situation you might call “unconscious saving”, since it requires no action from you other than to set it up initially. Finally, not only will your money grow more quickly when you invest in a good growth mutual fund, adding to your account each month via an automatic transfer will really get your account growing.
So what is stopping you from setting up an AIP? It’s as easy as a phone call and your signature on a form to initiate it.
What one thing will get you on the road to financial success? Start an automatic investment plan. So why are you still sitting there reading this? Get going!