Do you get anxious thinking about how to save? Is your paycheck gone before you even see it?
Fear not. There’s a simple solution: automate your savings.
Okay, it’s not that simple. If it were, more people would be saving. The good news is it’s probably a lot easier than whatever system you’re using right now. If you’re even using a system that is …
How to automate your savings
Most banks will allow you to set up automatic transfers from your checking to your savings account. You can pick the amount to transfer, the frequency (every week, every other week, etc.), and the accounts between which you’ll transfer the money.
If your current bank doesn’t support multiple savings accounts, then I would strongly recommend opening a bank account that does. A few years ago, I was banking with a local community bank, and you had to go down to the branch if you wanted to open a new account. I don’t think so!
I switched to an online only bank and haven’t looked back. These banks come with many other benefits besides the ability to open a savings account on the fly, such as higher APYs and better mobile apps.
I have different savings accounts for a variety of things – a car fund, an emergency fund, a travel fund, a moving fund, and funds for certain events (like conferences). I have automatic transfers set to each from my main checking account so they’re constantly being funded.
All you have to do is determine the amount of money you can spare to save. Assuming you have a budget, add up your expenses and subtract that amount from your income. Hopefully you have some room to save! Plug that number into the automatic transfer setup and you should be golden.
Why you should automate your savings
If you’re having trouble prioritizing saving money, then you’re not paying yourself first. It’s as simple as that.
By automating your savings, your priorities will have to shift. The money will get transferred out of your checking account, and hopefully, you’ll keep it in your savings account until you need it. You’ll be “forced” to live on whatever is left.
This prevents “life from happening” first. You’re safeguarding your ability to save against whatever curveballs get thrown at you. It’s a no-brainer.
Automating is even more critical if you’re a spender and your paycheck tends to slip through your fingers. If you can’t trust yourself to save, then automation is the way to go.
The one caveat with automation
I don’t necessarily think it’s a good idea to never think about saving. It’s great to have this system going in the background for when life gets busy, but automation shouldn’t lead to ignorance.
You should always check in on your various financial accounts throughout the month. Technology can (and will) mess up, you could be billed incorrectly (or numerous times), and in general, it’s a good idea to know what’s coming in and what’s going out.
If you don’t manage your accounts, you could end up paying an overdraft fee because you had less money in your checking account than you thought.
Additionally, you should be transferring your money to a savings account that’s somewhat hard to access. You shouldn’t be touching your savings for any purpose other than for what it’s intended. Otherwise, this system is a bit useless.
In a nutshell, automation can be helpful to get you started, but don’t lose touch with your money and become overly reliant upon it. Use it to kickstart your finances and empower yourself to take more control over your savings.