Saving money can be a daunting challenge, but it doesn’t have to be. When we receive our paychecks, without a plan in place for where our money will go (also known as a budget), we can easily overspend, and saving money becomes an impossible task. If you don’t know where your money is going, it will be gone before you know what happened. Budgets are, simply stated, money plans. Just as we plan our days around work and family responsibilities, with the freedom to relax and have fun once our duties are done, our money should be planned around our financial responsibilities, one of which should be saving for the future. Once those financial responsibilities are taken care of, a portion of what’s left can be designated as savings. Since our money only does what we tell it to, a savings account won’t grow by itself. We must make the decision to set up and fund a savings account if we want to watch the balance steadily grow.
Building a savings account can be simple, especially when the savings process is automated. If you can choose to have your paycheck directly deposited into your bank account every payday, you can designate a percentage of your pay (experts recommend 10% to 20%) to be automatically deposited into a savings account. This is a very effective method of building a savings account balance since the money never shows up in your checking account, therefore you aren’t tempted to spend it. If you can direct those savings to a different bank than the one where your checking account resides, even better. The brain is a funny thing; when we have less money in our checking accounts, or when believe that we have less, this feeling constrains our spending behavior. When we feel or believe that we have a higher balance, we tend to spend more.
Basically, you will spend less by hiding money from yourself. Take advantage of the direct deposit strategy and the fact that none of us regularly think about how much money is in our non-checking accounts. By having an artificially low balance in your checking account, you will feel as if you have less to spend than you really do, and you will essentially trick yourself into spending less than you would otherwise.
The Benefits
Easy to set up. The benefits of automated savings plans are many, starting with how easy it is to set up. With automated savings deposits, you can “set it and forget it”. The setup process is easy, normally taking just a few minutes to establish a separate savings account and designate the timing and amount of your automatic deposits, then the hard work is done.
Virtually painless. Adjusting your lifestyle and buying habits to spend just 10% to 20% less than you do currently does not require a major sacrifice. If your paycheck is $1,000, 10 percent of that is just $100, which breaks down to approximately $25 per week, or $5 per day, Monday through Friday. That’s an amount that’s easy to live without.
Small amounts add up fast. By faithfully depositing just 10 percent of your paycheck into a savings account every payday will easily, automatically, and steadily grow your savings account balance. Using the example above, if you get paid twice a month and faithfully deposit $100 every paycheck, at the end of 12 months you’ve saved an impressive $2,400.
Ease of use. Automated savings deposit takes the hassle out of saving by removing the need to make a separate transaction every time you get paid. By eliminating this step, your savings account continues to grow without a second thought. You won’t accidentally spend the money you meant to save, and you’ll eliminate the possibility of making impulse buys that drain your savings.
There are many other ways to reduce spending and divert those unspent funds into savings. Talk with your family about your savings goals (a bigger house, a new car paid for with cash, a family vacation) and get them on board with your vision. They may surprise you with some money saving suggestions of their own and be enthusiastic about being part of a joint effort as you work together to reach your financial goals.