Wednesday, November 23, 2011
Piggy Banks for Grown-ups: How to help yourself save
We encourage our kids to use piggy banks to save up for special purchases like bicycles and sneakers, but then we never consider taking our own good advice and employing the same means to save for ourselves as adults. But if anyone needs to save, it’s the grown-ups, even more than the children, because we are the ones with the strained budgets and awesome financial responsibilities and obligations to meet. Maybe we should revisit the concept of the piggy bank, to find out new ways to overcome the stress and hardship of trying to save money when it seems that every day it becomes an exceedingly more difficult task to accomplish. There are some ways to save that use the same premise, but in more sophisticated ways. For example, “dollar cost averaging” is used by investors to average out the highs and lows of their stock market holdings, so that on average, they make more money than they would by trying to time the ups and downs of the market. This is done by buying a set dollar amount of stock at regular intervals of time, regardless of the price of the stock, and is most conveniently applied to shares of mutual funds, because they can be bought in dollar amounts that are sometimes easier to calculate. For instance, you can have your broker apply $100 every month to buy shares of a mutual fund. Some months you may get ten shares for that price, and other months you’ll get eight or eleven shares. But over time, you will steadily increase your holdings, which increases your assets in the same way that socking away money in a piggy bank works. Another system that applies the same principal is to use automatic withdrawals and deposits that you can arrange with your bank. Each time you get a paycheck, for instance, you can have a portion of it transferred to a retirement account of savings account. Most of the time you won’t even notice that the money is missing, and you can unconsciously – or at least subconsciously – start to save more money. These methods of using piggybank philosophies to grow our money are strategically wise. Not only do they help us with the discipline of savings, but they also tend to do it in a way that is relatively painless and does not require the constant stress of making a conscious decision about whether or not to save.