When given many choices, the human brain will choose the path of least resistance which is why many people often put off making financial decisions. There are thousands of investments out there. Which is the best? How would you know? Where do I look?
Enter 401k defaults. In 2006 the Pension protection Act gave the option for employers to change the default 401k contribution from opting IN to opting OUT. Each Employee could automatically be enrolled to save for retirement. While this solves one problem, it begets another. Defaults are often as low as 2% or 3% and the employee never changes it. Therefore, there is some choice required to optimize retirement savings.
This can be applied to about a thousand other investment vehicles or financial goals that people want to pursue. If you want to buy a house (as an example) and you need to save, the savings has to be automatic. If you have to add steps to the process by logging in, etc….you won’t do it. We see this constantly which is why my two keys to financial goals are ARTICHTECTURE AND AUTOMATION.
You have to have the architecture to all your accounts set up in a way that makes sense and complies with the laws. Are you funneling everything out of your checking account so you don’t spend it? Are you over/under contributing to and IRA or HSA accounts? It needs to be set up in a streamlined manner.
And then you need to Automate it. Each transaction needs to be followed by the appropriate transaction so every chunk of savings goes where it needs to without you trying to figure it out when you are tired at the end of the day or “whenever you get around to it”.
So, here’s your friendly reminder to check your 401k contributions, set up automatic transactions to save or contribute to wherever your financial goals are going and if you need some help, give us a call!