Set up an automatic saving plan
Week 7 of the Bermuda 14-week plan to dramatically improve your financial lifestyle.
The Bermuda 14-week plan is an individualised financial review plan series adapted for our unique Bermuda financial environment from an original article by Libby Kane, Business Insider May 2015.
Find weeks 1 to 6 by visiting The Royal Gazette website under Martha Myron, starting on August 1, 2015 and each subsequent Saturday.
At week 7, you are 50 per cent of the way to changing habits and feeling more positive about meeting your goals, while stepping up control of your finances. Readers, including a homesick Bermudian living in New Zealand, are still requesting the Bermuda Simple Budget Worksheet, while another astute local reader provided her great savings plan tips that we will share below.
But, first, how are you doing? Are you still committed to participating? I know that financial fatigue has got to be setting in; I encourage you to keep at it. Write to me if you need motivation — you know I will read and respond.
Our focus this week is on planning to save automatically, so that an unexpected household expense, or something you desperately want to buy, does not torpedo your budget. You see, it isn't just about your budget now. We are moving into the development of a lifelong plan to achieve the goals you've set out — on paper, or embedded in your mind!
Why bother saving? Interest rates are so low. Bank monthly fees are more than you are earning on account. It almost seems self-destructive, so the negatives say “why not just keep it under a mattress?”
Not a good idea: theft, misplaced, too easy to spend, no appreciation in cash value whatsoever while consumer costs head upward — except gas.
A client of mine years ago found out the “hot” way that keeping cash and paper stock certificates around the house was not a good idea. The valuables in the paper bag was unintentionally dumped into the wood stove. A small fortune. Poof!
We save because we must satisfy the fear of having no money at all. Everyone needs a safety net cash cushion. Having to seek financial help is a humiliating blow to human pride in self-sufficiency. If nothing else can, let those feelings motivate your decision to save something each month.
Setting up automatic savings
1. Payroll deductions. See if your employer can deduct an additional 2 per cent, or more if you can spare it, with an automatic transfer to your savings account.
2. Voluntary additional pension contributions can also be made for individuals who are not consistent savers. However, keep in mind the pension administrator charges a fee for this service.
3. Do-it-yourself payroll deductions. Not every employer has the capability, time, or staff to implement an automatic savings plan for you. Our astute reader's savings plan. “I take much of the leftover amounts from each month's budget and put them into a savings, mutual or other investment account. None of these accounts are attached to my debit card so I cannot impulsively withdraw. If I need the money, I have to consciously logon to withdraw it. This was the best way to force myself to save.”
Plain vanilla savings offerings
• Term deposits — very low rates of return but at least you know where the money is and can get it back.
• Foreign currency certificates (term) of deposit offered by the local banks. These savings accounts tend to offer higher interest rates, but you must take into consideration the effect of currency volatility. Anyone invested in Canadian dollars, has seen a 25 per cent drop against the US dollar. Bermuda dollars are on par with US dollars, so they move in tandem with US dollar value on currency markets.
• Accumulator type plans where a small amount is invested in capital markets (or saved) every month — but it may cost you a commission to buy in and to cash out.
• Hand clubs are a traditional method for each member to help each other save. Each member's money is saved each month in a collective pool — that is held by one member in his/her bank account. It is that member's trusted responsibility to pay each member back once a year, all of his/her savings. This may be problematic for a Bermudian with dual US citizenship charged to hold the pool.
Not sure you can do any of these things? Try the 30-day Money Challenge — displayed in the chart that accompanies this article. Start small and work your way up. If dollar increments are too much, try fifty cents more a day to reach $232.50 in a month.
Be sure to hide that cookie jar well!
These are just some suggestions on putting aside some cash every month — and not touching it.
Readers, I'm building a huge chart of small stuff expenditures adding to the list of last week. Please keep sending me your hints and tips. They will all be published.
The Bermuda adapted version of the original series at Business Insider (see resources), utilises a 14-week process instead of 14 days. We do not have software tracking systems that feature Bermuda savings plans, choices in foreign currencies are not featured in a typical US personal plan environment as it is always assumed that one only uses US dollars.
Bermuda pensions and investments are structured differently, as are our insurance models, e.g. no affordable disability insurance, or long-term care insurance. Our estate planning / wills interpret ownership under joint with rights of survival differently at the demise of one, and many other differences in Bermuda financial planning.
Cross border caution. Bermudian individuals with US connections, US citizenship, US green card holders also have complex tax issues relating to offshore residency matters.
Next week we will look at finding ways to increase your income.
Weeks 9 to 11: Pensions and Investments Review. Your Bermuda national pension and Bermuda Government old age contributory pension are more methods of saving for the future.
Investing is savings (but with risk). Saver's individual impatience about low interest rates see the lure of high investments returns very appealing. So many investment opportunities are available, how do you choose which are legitimate, which have too much risk, which are conservative possibilities for the long-term?
We will discuss various scenarios to help you scope out the good, the bad, and the indifferent investments, as well as keeping track of your pension investments well on into the future.
The 30-day Money Challenge: Jeffrey Strain Jan 06 2015 Save Nearly $500 with the 30-day Money Challenge.
Link to the original series at Business Insider. http://www.businessinsider.com/improve-your-finances-2015-5
• Martha Harris Myron CPA PFS JSM Masters of Law: International Tax and Financial Services. Appointed to the Professional Tax Advisory Council, American Citizens Abroad. https://americansabroad.org/. Principal: The Pondstraddler* Life™ Consultancy providing international financial planning, publications, presentations for Bermuda residents, their multinational families and connections. Contact: firstname.lastname@example.org