Financial Literacy 101 - creating an Automatic Savings plan

Emmanuel Allottey

The surest path to becoming wealthy starts with saving. Personal financial planning encompasses all financial decisions and activities of an individual or household, including earning, saving, investing and spending. Automatic savings plan is an integral part of every financial plan that leverages technology to create a seamless way of saving money. The current economic environment brought on by the coronavirus has emphasised the importance of access to savings.

Key automatic saving options include;

Pension: a pension plan is a combination of an automatic saving plan and investing. The employer automatically deducts a specified portion of an employee’s income monthly, which is placed in pool of funds that are invested for returns. Employees on a pension plan enjoy the comfort and convenience of not having to actively manage and invest their savings. However, pension savings are not immediately available on demand. Pensions may not always return attractive yields to the dismay of the employee.

Reward points and merchant arrangements: there are numerous offers by financial institutions that offer rewards for card usage. These rewards are system managed and accrue automatically. For example, if you earn cash back with your credit card, you may be able to set up automatic transfers of that money so that whenever you reach a certain rewards balance, it is deposited directly into your savings account. Another specific feature is called “bank your change” – this offer automatically lets customers save a portion of their change every time they swipe their bank cards to buy goods or services. For example, when a customer buys goods worth $20.50 using their debit card, the buy amount is rounded up to the nearest $1 and the 50c difference is sent to their savings account. The more client transactions are made using their cards this feature facilitates the ability of clients to save as they spend.

Individual Savings accounts: this involves setting up an automatic transfer of a defined amount of money from an individual’s bank account into a savings or investment account at recurring intervals. This system creates a seamless movement of funds from your transactional account to savings account. It is important to understand the cost of setting up such instructions and any charges involved in the event of failed transfers.

As with every financial goal, it requires discipline. Savings translate into wealth if they are allowed to accumulate. Contact your nearest financial advisor to explore options available to achieve your financial goals.

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