A great way to steadily grow your savings balance and learn to budget your money better is by utilizing automatic savings. Typically when you automate your savings, a pre-specified amount of your paycheck or income is automatically deposited into your savings account. You can do automatic saving systems in fixed amounts or percentages. Whether you want to do $100 bucks per paycheck or 10% of every paycheck, either route is usually possible.
Setting money aside is only half the battle. You should have a system of checks and balances in place as well to ensure you’re getting the best bang for your buck. Here are our best tips for not only automating your savings but how to ensure you do so with maximum efficiency.
Current and Future Budgets for Savings Automation.
Budgets are a great way to determine how much you can potentially be saving.
- Evaluate your current budget: Your automatic savings game plan should first include a budget. Take a look at your current finances to determine just how much extra money you can set aside and not touch. If you’ve never budgeted before, something like the Mint app is a great tool for beginning budgeters!
- Reevaluate your budget regularly: Every 3-6 months, you should take some time to reevaluate your current budget. Has anything changed in your life, whether it be income or spending habits, that allow you to put more money aside?
What Are Your Goals For Savings Automation?
Current and long-term goals are a great driving factor for sticking to your automatic savings plan.
- Current goals: What is it you hope to achieve by being more efficient and utilizing an automatic savings plan? Do you want to create an emergency fund/nest egg? Are you planning for a major purchase in the next 6-12 months? Realizing your goals can help give you the motivation to stick with your savings automation schedule.
- Long-term goals: Another helpful and motivating step to take in the savings automation process is figuring out your long-term goals. Do you have a child going to college in 10 years? Do you want to pay your mortgage off early? Long-term goals can be even more motivating than your current or short-term goals.
Choosing the Right Savings Account for an Automatic Savings Plan.
The right kind of savings account can make all the difference in the world!
- High-yield savings account: To get the most for your money, it’s important to utilize high-yield savings account for your automatic savings plan. Here’s a great list of the highest-paying free online savings accounts.
- Low-fee savings accounts: It’s hard to make your money work for you when your money is eaten up with unnecessary fees. When looking for a new savings account, check for opening fees, monthly or annual maintenance fees, and minimum balance requirements.
Actually Setting Up Your Savings Automation
It’s impossible to start automatically saving if you don’t ever actually set it up!
- Your company’s direct deposit: Ask your HR department if you can reconfigure your direct deposit with them. It would be best if you had an option for a split deposit. For example, you should say you want 90% of your check-in checking and 10% in savings. Just make sure you have the account and routing numbers!
- Automatic Savings Apps: You can also use some of the automatic savings apps, many of which have built-in FDIC-insured savings accounts. Some of the most popular apps for savings automation include:
- Tip Yourself
- Empower Finance
You will be able to find this useful app on Goole Play or iTunes. The only drawback is that some of them require you to use their in-house savings accounts. So with Chime, for example, you cannot link an outside account to an automatic savings plan. It is, however, a good choice for people who don’t currently have a savings account and are looking for an all-in-one solution.
The Single Most Important Rule of Automatic Savings:
- Do not touch the money in your savings account for something other than the goals you set earlier or for an unforeseen emergency. The entire premise behind savings automation is completely thrown out of the window whenever you spend the money as if it were in your checking account. Furthermore, savings accounts are regulated to only 6 withdrawals per month. Your bank either may not let you go past 6 withdrawals, or they may charge you fees and penalties for doing so.
Savings automation is straightforward to set up, and the reason behind wanting to do so is easy to get behind. The hardest part about an automatic savings plan is sticking to your goals and not touching the money. The whole process of automated saving is also a great way for beginners to learn how to properly budget and is a great foundational building block of financial planning.