Think you can’t save more? Think again. When you automate your savings you’ll remove the step of manually moving money from your checking account to your savings account. The fewer steps you have to take to save money, the higher probability you’ll save more money.
I’ve talked to many friends who really want to get better at saving but just haven’t been able to. I’ve created budgets for them and it works for a few weeks but then their spending habits return back to normal. They see how much money is in their checking account and spend it. The number one thing that has helped them save more money is to automate their savings. If you see money available in your checking account and spend it, start automating your savings today.
What Does It Mean to Automate Your Savings
Automating your savings means you remove any manual steps to save money. A manual step usually includes having your paycheck deposited in your checking account and then you initiate a transfer of some of that money to your savings account. To automate your savings, set up direct deposit to your savings account when you get paid. Then, when you get paid your savings automatically is in your savings account, no manual transfer required.
There’s no more thinking about how you need to move money from one account to another and creating risk that you may spend some of that money before you remember to move it. You can set how much money you want to save in your savings account and forget it. You’re still able to spend this money in a pinch if you need, but that extra step of having to use another account and know you’re pulling it from your savings account helps scale back the spending and increases your success in growing your savings. Periodically you can check in and see how much your account has grown!
See Also: How to Generate Passive Income
How to Automate Savings By Setting Up Direct Deposit To Your Second Checking or Savings Account
Most companies offer select multiple accounts for direct deposits when you get paid. Choose which account gets a fixed amount every paycheck and which account gets the remainder of your paycheck. If you don’t have the link on setting up direct deposit your company provided you when you joined, search your internal HR Portal / intranet or ask your manager / HR.
- Bank Account Number
- Routing Number
- Type of Account
- Bank Name and Address (you can use any address of the bank)
- Account Holder Name
Best Time to Start Automating Your Savings
The best time to set up your savings account as a second direct deposit account is when you get a raise. Even if you only direct $25 per bi-weekly paycheck to another account, you’ll save $650 / year. You won’t miss this money if you time it with a raise because the amount you’ll see in your primary account won’t go down.
Another way to start is to look at how much you want to save for the year. If you want to start at $1,000/ year, you only have to direct $38.50 per bi-weekly paycheck to your savings account. If it’s $5,000, set aside $192.30 per bi-weekly paycheck to go to your savings account and then have the rest of your paycheck go to your checking account. And at that point, what’s another $16/ month? If you increase it to $200 / paycheck you’ll save $5,200 that year.
You also have the opportunity to set your savings account as the account that gets “everything else” and your checking account gets a set amount of your paycheck. In this scenario, if you get an unexpected bonus or raise it’ll automatically go to your savings account.
This is really what they mean when they say “pay yourself first.” And, it’s a great way to begin building your emergency fund.
The same is with your 401k. Anytime you switch jobs or get a raise you should increase your contribution to your 401k, even if it’s just 1%. Over time, it adds up.
What are ways you’ve found to automate savings and increase your savings rate?