Tuesday, May 6, 2008

Automatic Saving and Cooperative

I've been MIA in this blog for quite some time. I got really busy with some stuffs in the office and our home. So what, chocnut? Nothing really. I just want to discuss something about automatic savings. I had read some stuffs regarding this in DEXTER's BLOG and just want to spread the good things about it.

Automatic savings is the a scheme or system that you may have in your company which you may or may not be aware of. Mostly this is a cooperative. The contribution is automatically deducted from your salary. I was a fan of cooperative since grade school. We have one in our school but it is just like a bank. We can deposit and withdraw anytime.

Our company cooperative is somehow different. Below are some of the details of how it works:
1.Our savings/contribution is being deducted every payday.
2. Minimum share is 2 which is equal to 200/payday.
3. We can change our share/savings anytime. We can increase or decrease it.
4. We can deposit an additional amount without going thru our payroll.
5. Annual dividend/interest is being deposited in our payroll account.
6. Past Performance dividend >10% annually. Not bad huh?
7. We can't withdraw our shares unless our savings reached 100k.
8. The excess to 100k is the only amount you can withdraw.
9. If you have a savings less that 100k and you want to withdraw,you would need to cancel your membership and just re-apply after a year.
10. You have to withdraw all your shares if you leave the company.

I like how our cooperative works. We are saving unknowingly. A 200/payday is equal to 4800 in a year. The only downside that I am seeing is that the dividend is given every year. Therefore the law of compounded interest is not applied. But still, we can play the game because we have an option to deposit an additional fund aside from our periodic deduction. Therefore,we can deposit the annual dividend back to our account. This means that we can still apply the law of compounded interest. The sad news is, I haven't done it yet. Something always come up. But we'll make sure that we'll do it next year.

Right now, we are analyzing if we should continue to save for our emergency fund in our bank account or just put our savings in our coop. Come and let's do the math.
Bank Interest = 0.75%
Coop Dividend is =10% for the past 7years

For a 200/payday savings, total savings plus interest after a year will be:

Bank = 4819.5
Coop = 5060

Coop interest will be higher but there would still be cons which I still need to think and list down before deciding.

But my point is that we should take advantage of an AUTOMATIC SAVING system in our work place if we have one. We can start saving without us knowing that we are already building up our retirement fund.

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