@ClementsMoney Saturday Critical Action – Invest Automatically
Welcome to the Saturday Critical Action. Each Saturday we take the weekly action from Jonathan Clements‘ blog Humble Dollar and “militarize” it for you. Jonathan Clements was a longtime personal finance columnist for The Wall Street Journal, and he offers great advice at the best price you can get…free. Here is this week’s critical action:
INVEST AUTOMATICALLY. Looking to save more? Take two steps. First, increase the sum you contribute every paycheck to your employer’s 401(k) or similar retirement savings plan. Second, sign up to invest automatically every month in your favorite mutual funds. Some funds will even waive their regular minimum if you commit to a monthly savings plan.
Here are my tips for automatically investing in the Thrift Savings Plan (TSP):
- Base your contribution off of your basic pay because it is the most stable and predictable pay you have. If you prefer to contribute from bonuses (or some other type of pay) you can, but realize that they tend to be less predictable. Over the last 1-2 years my community’s pay structure changed, and those that were contributing to the TSP from their bonuses saw their TSP contributions get hosed up. Mine didn’t miss a beat because my basic pay stayed the same.
- If you are trying to max out your TSP for the year, you need to manually adjust your contribution for December so that you fall just under the maximum contribution limit. If you go over it, the TSP will stop your contribution for that month. You should be able to contribute right up to the maximum limit and then have it stop, and I swear that is how it used to work, but that is not how it works now. Here’s the relevant section from my LES:
- If you are in the Blended Retirement System (BRS), make sure you don’t fill your TSP early. If you fill it in September, you won’t get a match for the rest of the year. You have to contribute each month to get the monthly match.
If you have other tips you’d like to share, add them to the comments section below.