6 Simple Ways to Automate Your Savings
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A common excuse I have heard as to why people save little or nothing at all is that the person does not have the available money to save or does not have it budgeted. While that reason is understandable when money is tight, automating the savings process can make the act of saving relatively pain-free. A central tenet of living a frugal life is the idea of paying yourself first before all other obligations. Think of saving as paying yourself first. By implementing six simple action steps you can be on the road to savings.
#1 – Decide How Much to Save
This decision is one that can be made during your budget preparation process. The mindset to have while making this is to pay yourself first. No matter the amount, you need to put saving for yourself ahead of all of your regular monthly obligations. Many experts say that you should be putting 10% of your take-home pay into savings. This may seem impossible at first, but don’t get discouraged. Take a look at your obligations and determine what you can reasonably put away without having to sacrifice too much.
#2 – Decide When to Save
Now that you’ve made your decision on how much you want to save, it’s time to determine the frequency. A simple rule to follow is to look at how often you get paid and have funds diverted into your savings account at the same frequency. So, if you get paid bi-weekly, you’ll be putting money aside into your savings account every other week, such as on the 1st and 15th of each month.
#3 – Contact Your Bank
Many banks will allow you to set up a regularly recurring transfer of funds from your main account over to a savings account. By setting this up it will automatically transfer the funds over and make it painless for you. Make sure that they do not charge a fee to offer this service and also inquire if they offer any savings accounts that give rewards for reaching certain levels of savings.
If they do offer a program that offers rewards for different savings levels check that out as one who’s living frugally loves getting free stuff. If your bank will not allow you to do this then speak with your employer and see if they allow a certain amount of each paycheck to be diverted into your savings account each pay period.
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Either of these ways works and by automating the savings process you can realize success in your savings goal.
#4 – Set a Savings Goal
If you currently don’t have a high-yield savings account, or are not consistently saving, then setting a goal is key. These funds will ideally be used as a spring board to your Emergency Fund, but we must start with a more realistic goal as the act of automating your savings can help you build momentum for bigger savings goals.
With all of this in mind, come up with a realistic goal that you think will be easy to hit in not too long of a time. You can set a goal of $500 or $1,000 and work towards that. Either of these, in general, should be easy to hit without making the act of saving too burdensome.
#5 – Reward Yourself
Once you’ve hit your initial saving goal, reward yourself. Choose a small, frugal treat to give yourself a pat on the back for reaching your savings goal, such as a trip to your favorite ice cream shop or casual restaurant. While this may seem counterintuitive to reward yourself for saving, it can encourage you to move on to bigger things as you have taken this new mentality of savings and made it a habit.
#5 – Set a New Goal
Congratulations, you have reached your initial savings goal! Let this be an opportunity to challenge yourself and set a new goal for your savings account. If you have saved $500, why not now go for $1,000? Again, the idea behind automating your savings is to provide yourself a framework for your Emergency Fund. With that in mind, set yourself a challenging, yet reachable goal that will help you to continue to develop your savings mindset.
Saving money can be tough, especially in a weak economy, if it is not something you are already doing. However, by automating your savings, the act is taken care of for you. Living a life of frugality is one of freedom, but also one of choices. By choosing to automate your savings you can set yourself up for success as this is a foundational step that can breed success in many other areas of your financial life.
What are some of the goals you have with saving?
John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.
Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.
Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.
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25 Comments
We use ING to do this. We have different savings accounts labeled for different purposes and then we have contributions to them deducted automatically from our accounts. It makes it so we don’t even see the money. It really works well.
I’ve heard great things about using ING. We do similar things through USAA, but it requires us to have separate accounts. I love being able to set up the automatic deductions and not “feeling” the money movements.
We’re currently trying to save a down payment for our next house. We’re not quite sure how much we’ll profit when we sell our current one, so we’ve set a goal to make sure we have enough cash to cover a 5% down payment. We don’t automate savings, but with the way we budget, we do close out each month and designate any “extra” cash towards our goal.
That sounds great on working towards a down payment, especially when you don’t know what you’ll take away from your current home. I’ve heard about that budgeting/saving method and know that it works good as well.
We budget in our savings so we know pretty much what will be going into our emergency savings every month. I also hear the same thing, we don’t have enough, make enough etc etc. We have a mate who says just that and works for $10 an hour at a popular coffee shop. There is not a day that goes by that she doesn’t have 3-4 xl coffees from this shop. Are we getting the picture here? All that money can be saved, make coffee at home. Some people are NOT willing to give up in order to get ahead so they will continue to struggle and whine but no one will hear them. It’s up to the individual to set goals, budget and make the first steps even if small, meaning saving $5 a month. That will add up over the course of a year and then you will have some money set aside. Great post. Mr.CBB
I agree Mr. CBB, some just don’t see the big picture when it comes down to saving and don’t realize that a few small decisions can really add up. The coffees are a great example. My wife loves lattes, and I do as well from time to time. We bought a machine for maybe $70 3-4 years ago so we can make them at home instead. Someday I should do the math and see how much we’ve saved just by making that decision.
I like the plan you laid out in this post: set an initial savings goal, reach it, and then set another one. All the small goals add up!
I agree DC…just like you said in your post last week. I find that by having smaller goals it can help make the process of attaining that goal less insurmountable. It’s just too overwhelming to say ok, I am going to save money for a house, or I am going save money for retirement, etc. Taking small steps will make the big ones easier and help you reach your overall goal.
My wife and I tried automating our savings once, andI guess we overdid it. We automated all our bills and savings and thought it would help us save and save us time. We only eneded up overspending anyway and overwithdrawing from accounts. 🙁 That was a long time ago. We’ve learned now that for us, we can’t automate anything. We need to look at each dollar that comes in and make a decision each month about what will happen with it.
I can see how that would be a problem TB! You’ve gotta go with what works for you in my opinion. As long as it helps you stay within your means, then go with what works for you.
These are all great tips! Maybe I am a loser but I love getting paid and seeing how much I can transfer to savings. It turns me on.
Well, if you’re a loser Holly then so am I. 😉 I still like to move a chunk of money over to savings, I feel great after doing so. I just like automation because I won’t forget about it and it frees me from having to do it manually.
I think automation is absolutely critical to reach savings goals. Out of sight, out of mind! I always ensure that transfers are made the day after my pay goes into bank to mitigate the risk of temptations!!
I totally agree! I know that I have it set up and I really don’t feel it because I know it’s being taken out. Plus, with each one I know that gets me one step closer to my goal.
I agree for the most part, but as a freelancer it’s more complicated. I’d talk about it more but it takes a lot of explanation. Believe me, when I get a full time job this will be priority #1. Until then I have to saver percentages as I get paid on projects.
I hear you on the freelancing. My wife and I run our own business so I know it can be difficult. I know it can be difficult to automate savings when you’re not getting a known paycheck every two weeks. Saving a percentage is a great step that I am sure will help you get to your goal as you secure full time work.
I love automatic savings. My retirement comes right out of the paycheck and I set up an account with ING this year and put some other savings in there. I find that not having it in my main local bank, I don’t always remember it’s there. When I do remember to check, I’m always pleasantly surprised at how much is there. We will use this for vacation next year.
That’s great you have that set up Kim. I have a similar situation with a non local bank and at times forget it’s even there. Then, I take a look from time to time and I am always pleasantly surprised at the savings we have there.
Now that we are retired and no longer have taxes deducted from salary, our savings goals revolve around saving up to pay estimated income tax – does that suck or what!
That does suck! I can feel your pain, to a certain extent, as my wife and I have to do the same very thing as we run our own business. I always hate having to write that check each quarter.
I think rewarding yourself is huge and highly agree. Personally I save by using “automatic” draft that comes out when I get paid and is transferred to various savings accounts. This works the best for me, because I just learn to live on what’s left. (same with retirement)
You’re right on Jason. I think rewarding yourself along the way can really help breed success. Tht’s awesome you’re doing it with retirement saving as well.
Great advice John. I started making my own money when I was 25, and since I am a single parent, prioritizing needs from wants became natural. I became more responsible with handling the budget and was more careful saving for future expenses. But in agreement to what Jason had said, I still see to it that I reward myself once in a while. It’s less depressing that way.
I hate automating savings, or any bill for that matter. I like paying bills and more importantly I LOVE making that transfer from my checking account to my Vanguard account every month. I budget down to almost the last penny, so any mess-ups could severely impact my checking account.
That’s great that you love doing it & for someone that loves doing it manually this is not really an issue. My point was a larger one that many people use some sort of an excuse as to why they’re not saving. By automating it and even starting out small they can develop that discipline of saving.