How to Start Automating Your Savings
One of the most important parts of budgeting is paying yourself first. Setting aside even small amounts regularly can help grow your stash significantly over time. Whether you’re building an emergency fund, preparing for retirement or saving up for a large expense, automation is one of the easiest ways to start your savings habit and reach your goals.
Here are four simple ways to start automating your savings.
1. Set Up a Monthly Account Transfer
One easy way to fund your savings using money you already have is by setting up a regular transfer into your savings account. Check with your financial institution about setting up a monthly transfer from your checking to your savings account. These regular transfers are usually free of charge.
This method is especially easy to adopt if you already use Bill Pay or automatic payments for your bills. By treating that transfer just like another bill—albeit one you pay to yourself—you take the guesswork out of the process and make it easier to grow your savings account or emergency fund.
How much money should your automated transfer include? However much you can! While common budgeting strategies suggest saving at least 20% of your monthly income, any amount will help in the long term. Even setting aside as little as $5-$10 per month can really add up—especially if your savings account pays a higher Annual Percentage Yield.
3. Split Your Direct Deposit
You do not have to deposit your entire paycheck into your checking account. Splitting your paycheck between a savings and checking account is a great way to automate your savings and force you to put money aside before you’re tempted to spend it.
Check with your employer to get the form you need to redirect part of your paycheck to the savings vehicle of your choice. Many employers allow workers to allocate their pay based on percentages or dollar amounts, so you can choose the option that works best for you. Just be sure to check your budget first and make sure you’re putting enough into your checking to cover your essential expenses.
2. Sign Up for Your Employer’s 401(k) or 403(b) Plan
Participating in your employer’s 401(k) or 403(b) plan is perhaps the easiest way to automate your savings, especially for your long-term planning. The money you contribute comes out of your paycheck automatically, and the amount is deducted from your taxable income. If your employer matches your contributions, start by allocating the maximum amount that can be matched.
Even if you think you can’t afford to save for retirement, start by contributing 1% of your paycheck or whatever dollar amount you can spare. You may be surprised how easy it is to put money aside for retirement—and by how quickly it adds up.
#4. Use Your Tax Refund to Jump Start Your Savings
With the average tax refund in the U.S. being around $3,000, there is a lot of extra money sloshing around come tax season each year. Unfortunately, a good portion of that money is spent on one-time purchases and other indulgences.
Make this the year you jumpstart your savings. If you file electronically, have the tax refund sent to your savings or money market account instead of your checking account. If you file on paper, allocate part of your refund to your favorite investment, or better yet, use it to fund an IRA. Contributing money to an IRA will also jump-start your retirement savings, but the money you set aside that way could reduce your future taxes as well.
Conclusion
Saving for the future isn’t always completely painless, but these tactics can take the guesswork out of the process. If you have been putting off saving and investing, now is the perfect time to get started.