Whether you’re a retiree, a college student, or anywhere in between, saving money can be difficult. Perhaps it seems like whenever you’ve got a little extra cash around an unforeseen expense pops up. Or maybe after the bills are paid at the end of the month there just isn’t enough left over to put into savings. The simple fix to saving more is automating your savings.
Don’t Wait, Automate
Automating your savings is simply creating electronic instructions between financial institutions. These instructions can be set to occur monthly or weekly so that funds are dispersed to a savings destination without requiring any interaction on your part. You’re already doing something similar to this when you enrolled in any autopay billing process and there’s a reason why companies offer it: they get paid on time, every time. Do the same for yourself and pay yourself each month.
The Psychology of Saving
Human nature makes saving difficult. If we leave all of our funds in our checking account, they’re likely to get spent. If we have to consciously decide how much to save at the end of each month it’s easy to rationalize our way into saving less. Automated savings takes the human and emotional elements out of saving — you save without thinking
Order Matters
You may be wondering how you actually save more through automated savings. The answer lies in the order, or priority, of how your money is addressed. For example, if you are the type who spends your money, pays your bills and saves what’s left over, you allow your spending to dictate how much you save. To the contrary, if you automate your savings for the beginning of the month, you can only spend what you have left over. In the latter scenario, your savings dictates your spending, so the priorities have been flipped towards saving.
Don’t Stop at Retirement Accounts
If you automatically contribute to your company 401k plan each pay period then you’re probably thinking you have this whole automated savings thing down. The good news is that you can do much, much more. Saving for a boat, car, vacation, or home? Set up a separate account through an online bank or custodian for each item you’re saving for and set each account to receive electronic distributions from your checking account. That way each account has a specific purpose and you don’t have the distraction of all your funds sitting in your checking account, begging to be spent. Once you’ve reached your savings goal, send the money back to the checking account and spend away, guilt free.
Have a Security Blanket
If you’re automating your savings and paying your bills with the leftover funds, you might come up short on your bills from time to time. That’s why we advise having a mini-emergency fund (not your actual emergency fund) set up to absorb the fluctuation of each month’s expenses. Typically, your bank checking account gets linked with a savings account. That bank savings account is a good candidate for this mini-emergency fund. You should be able to easily transfer cash from your mini-emergency fund to your checking account to pay bills.
Want to learn more about how to automate your savings? Contact us here and we’d be glad help.
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