Automate Your Savings To Draw From Checking, not Savings

This is a short article for the good people out there getting after it financially. You've probably already automated your savings with monthly deposits. The banks make this easy. Vanguard makes this easy. And we like dollar-cost-averaging.

Good! I'm glad I don't need to convince you of something obvious!

Well, here's a little gotcha I nearly ran into this month that is going to drive me to make some changes. There is a limit of 6 withdrawals a month on my online High-Yield Savings account (think Capital One 360, which used to be the ING Direct Orange Savings account).

This suits me well most of the time but this month I will hit the limit because I bought more of 4 different funds on Vanguard to "rebalance by purchase only" (RBPO). This is a tax strategy. If I rebalance by selling, I will have to realize gains and that means a tax hit. My preference in my after-tax investments is to RBPO.

Vanguard processed this as 4 withdrawals. And when you add this to my automatic monthly purchase and the money I move to another account automatically that is 6. Exactly the ceiling. Whew...

Looks like I need to change it up: I plan to use my Checking account as the hub for automated savings and the funnel for my rebalance purchases to avoid transaction limits (and penalties) in the future.