Electronic funds transfers encourage regular saving

Before you know it, the money seems to vanish, and you don’t even know where it went.

While you’re focused on just making ends meet, putting money away for the future might be the last thing on your mind.

Even so, you need to remember that taking care of your long-term financial goals is just as important as meeting your current needs.

Ever since the days of putting pennies in a piggy bank, you’ve probably received plenty of advice on the value of saving your money. But when your parents aren’t taking care of the necessities any more, and you have your own bills to pay, it’s easy to lose track and forget to save.

Save early

As a reminder of just how important it is to put part of your income aside – and do it sooner rather than later – take a look at an example of how the numbers can shake out.

For this example, we’ll use two investors, one who starts early and lets her savings grow, and one who waits until later to begin saving.

Let’s say the early investor puts away $5,000 a year for five years and then allows that investment to grow for 15 years without putting in another penny.

The investor who started saving later, on the other hand, waits 10 years before beginning.

He then invests $5,000 a year for 10 years, putting his total investment at $50,000, exactly twice as much as the early investor.

Assuming an 8 percent average annual rate of return on their investments, if we jump ahead 20 years from the time our investors started, the difference in their savings accounts is substantial. Our early investor would have accumulated a total of roughly $100,493 in her account by this time.

Keep in mind that she hasn’t put a penny of her own money in for the last 15 years.

Meanwhile, the late investor’s account has grown to only $78,227, and he has been contributing each year for the past 10 years. This means that our early investor only put in half as much of her own money and came out well more than $20,000 ahead.

This example is meant only to illustrate the importance of saving early and regularly.

It doesn’t reflect the performance of any particular investment, and it doesn’t take into account the eventual effects of taxes. But it does make the point very clearly, that delaying for years in getting started will cause an investor to lose out on the benefits of compounding for a longer period of time.

Disciplined investment habits aren’t always easy to come by, but there are several things you can do to improve your savings routine.

Transfer electronically

One of the easiest ways to establish a savings plan is to take advantage of the convenience of electronic funds transfer, which you might already be familiar with if you receive or make electronic deposits to your bank account. This service also is available from other financial services firms, and paying yourself first by using an EFT system can help you get into the habit of saving.

Direct deposit allows you the opportunity to deposit all or part of your paycheck into the account of your choice.

Deposit automatically

Another way to take advantage of an EFT system is to set up an automatic monthly deposit.

This is a simple, disciplined way to add to your account, authorizing a specific amount to be transferred from one of your accounts to another, such as from checking to savings.

Regardless of what method you choose, or even if you decide on a completely different investment strategy, putting money aside now will help you reach financial goals further down the road.

Timothy M. Reese is senior vice president, investments with A.G. Edwards & Sons Inc., member SIPC.