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Editor's note: This article originally ran on Consumerism Commentary. It has been reprinted here with permission.
Last month, I wrote about the opinions of Scott Adams on his eventual success as the creator of the comic strip Dilbert. I focused on the failure aspect of the article he wrote for the Wall Street Journal, and I only touched lightly on the success factors. A system, a methodical way of approaching any particular effort, is one of the core components of success.
A household uses systems all the time. You may have a system for effective grocery shopping: Perhaps you keep a notepad and pen on the refrigerator, write down anything you need to purchase when stocks are low, take the list with you on your shopping day, and, for the most part, prevent yourself from veering from the list too much when you shop.
You might have a different system for grocery shopping: you may have an automatic shipment of groceries delivered to you from Amazon.com every two weeks, each time the same order.
If you read Consumerism Commentary regularly, it’s likely you have at least one system in place to improve your savings over the long-term. It’s a concept I’ve discussed many times over the past decade, and it’s such a basic piece of financial advice that you’ve no doubt heard of it even if you haven’t been reading my writing for long.
You must make your savings automatic. By creating a system that handles your savings automatically, you eliminate or greatly reduce the chance of not reaching your goals. It’s a technique that someone at any income level can put into practice. Having a bank account (or an account at a credit union) makes it easier because financial institutions have technology that assists in this approach to money management.
Every once in a while, if you read about money management, you might come across a rule of thumb. “You should save 10 percent of your income” is one such common refrain. You can look at this either as a position to start or as a goal that might take some time to accomplish due to other factors. Even starting a savings system with 1 or 2 percent of your income is better than haphazardly setting money aside.
Direct deposit of your pay.
The fewer hands that touch your money from the moment you receive it to the moment it is used, the better. Most modern employers offer direct deposit. Rather than receiving a paper check, you provide your banking information to the employer and the company sends an electronic payment directly to your bank. In most cases, you receive your pay as much as a business day sooner, so you have the opportunity to pay bills or collect interest faster.
More companies are offering employee pay in the form of debit cards. For employees without bank accounts, this may be slightly better than having those employees use expensive check-cashing storefronts to access cash. But when compared to direct deposit, this is a horrible idea that will likely have adverse effects on the employee’s ability to build savings from their income over the long-term.
Sign up for direct deposit, and if your employer doesn’t offer it, encourage your boss to consider it. Direct deposit is the best system for keeping more of your income.
Automatic bank transfers.
Almost every bank with which I’ve had an account — and that number is likely around forty — has some method of creating automatic transfers.
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