Do you find it difficult to save money? Does it seem like you just wave “hello” and then “goodbye” to your money as it passes through your checking account, while your savings account sits sadly waiting to receive some attention? Often despite our best intentions to put some money aside, our savings account balance remains at zero. One way to help yourself (some might say “force” yourself) to save money is to automate the process. Setting up a portion of your paycheck to go directly to your savings account means you never have the opportunity or temptation to spend those savings. They quietly bypass your checking account and settle down into your savings account to rest there until needed. Why should you automate and what’s the best way to automate your savings?
1. You can start the process of automating your savings at any time. You might have a big expense looming on the horizon that motivates you to start saving. That’s a perfect time to set up automatic payments for your savings account. Take the total amount of the expense and break it down; if the expense will be due in a year, breaking it up into 12 equal payments is a simple way to make achieving your goal simple.
2. One advantage of automating your savings process is that it takes the task off your “to do” list. If the payments are going into your account automatically, you don’t have to remember to set that money aside. It’s almost like giving yourself a gift – your money grows every paycheck, and you only have to set the process up once. At some point, you can open your gift and use it for that expense you were saving for, take that trip you planned, or take care of that emergency you didn’t see coming.
3. The steps to take to automate savings are not complicated. Start with a budget that includes a savings category. After all your fixed expenses are covered – things like rent or mortgage payments, car payments, insurance, utilities, food, and basic household expenses – take any surplus and decide how much of that you want to have on hand for unforeseen expenses and how much you can put away. Aim for at least 10% of your total budget to be designated as savings, but set a definite amount and commit to it.
4. Next, contact your bank and ask about their savings account options. Some financial institutions offer savings accounts that earn interest, some have checking accounts that automatically round each purchase up to the next dollar amount and put the change into a savings account, others have savings accounts you can lock for a period of time to prevent withdrawals. There are all kinds of savings accounts, so do your research and decide which one will work best for you. You might even want to use a different bank just for your savings account to make it less accessible when you’re doing your regular banking.
5. Once you’ve chosen the right kind of savings account for you, set up the automatic drafts from your paycheck to go to that account. You may be able to do that through your employer with a simple direct deposit form that splits your paycheck between your checking and savings accounts, or you may have to submit specific paperwork to your bank. Either way, you’ll only have to do this once, and you should be able to change the amount of money designated for savings at will. Be sure to ask your bank or employer what is involved in increasing or reducing the amount of deposits.
6. If you’d like to get a jumpstart on your savings, consider saving most or all of your next tax refund instead of mentally spending it before it arrives. You’ve done without this money all year long, and it would be a fantastic way to start the saving process with a lump sum. If you use credit cards (and hopefully if you do, you’re paying the balance off every month!), get a cash back rewards card that earns money with every purchase.
7. One big budget killer is excess charges. If you’re late on a bill and incur a late charge, or you become overdrawn at the bank and get hit with overdraft charges, these fees can take an unexpected and painful bite out of your budget. By automating your bills through your bank’s bill pay service, you’ll never have to worry about late fees. Just be sure you have the money to pay those bills in your account when they are scheduled to be paid. You can end up saving hundreds of dollars every year in late and overdraft charges.
8. Take advantage of matching funds. If your employer has a 401(k) that offers matching funds, you’re leaving money on the table by not taking advantage of it. Talk to your Human Resources Manager and find out how to begin taking a portion of your paycheck and investing it in an account your employer will help you grow. The percentage can be so small you won’t even feel the difference in your take home pay, but the payoff can be huge as your account balance grows with every matching deposit.
No matter how you automate your savings, there’s never a wrong time to start or an amount too small to save. Just get started, map out a plan you can follow, and be willing to make any adjustments you need along the way to stick to your plan. Before you know it, you’ll have a savings account you can be proud of!