Section I - Lesson 4C
Financial Plan - Automatic Income Streams
Step three of your financial plan will be to take pro-active control by setting up automatic income streams for your two separate accounts. In each investment account you want to arrange for money to be regularly and automatically deposited.
By regular we mean that the amount will be the same each month, subject to being raised a bit from time to time as you get salary raises. We also mean that this amount will be deposited on about the same day every month. By automatic we mean that you値l instruct your employer or your bank to take action every month, as later described, without further notice needed on your part.
In our earlier example we described how you could arrange to have 10% of monthly salary set aside each month. We used the 10% figure just for the purpose of that particular example. We池e actually going to ask you to save a total of 12% of salary every month, for reasons that will become apparent as we go along, and we値l ask you to direct half of this to your regular money account and half to your retirement (401k) account.
The procedure to do this will differ between your two accounts, depending on what type of retirement account you have available to you. For now we池e going to assume that you have a company sponsored 401k plan to use as your retirement account. Later in this course (Section III-B - Lesson 1) we値l describe the procedures to use with an IRA if a 401k is not available to you.
Assuming that a company sponsored 401k plan will be your retirement account, all you have to do is tell your benefits coordinator how much you want deducted from your paycheck every period. Our strategy directs that you ask for 6% of gross pay to be automatically deducted from each paycheck and deposited to your 401k account. If your employer matches all or part of this contribution, you値l get the benefit of even more than 6%, as we値l discuss later in Section III-A.
For your regular money account, you値l need to set things up a little differently. Whether your paycheck is automatically deposited to your bank every pay period, or whether you make this deposit yourself, you値l want to instruct this institution to do an automatic withdrawal of a certain amount every month and do it on about the same day every month. You値l probably want this done just once a month, instead of every paycheck, and you値l have to tell the bank some dollar amount instead of a percentage.
Our strategy asks you to commit 6% of your gross salary to your regular money account as a regular and automatic deposit. You値l have to calculate a dollar amount for the bank. If your gross salary is $3000 per month, you値l tell your bank to withdraw $180 every month, on a particular date, and forward it to your mutual fund company for deposit to your investment account. As your salary increases from time to time you値l want to recalculate this figure for the bank.
A Publication of About Your 401k.com
The book that inspired the birth of this website. Now available in either PDF or hardcover. Check it out!
_________________
_________________
_________________
