Saving money is an important financial goal for many people. Whatever kind of savings account you have, you can use it to accrue savings for an emergency fund, for a down payment on a house or a new car or even to pay for your child’s college education.
At Addition Financial, many of our members want to make saving money a priority. We believe that automating your savings is the best way to work toward your long-term goals. With that in mind, here’s our guide to how to automate your savings with various methods to try.
If there’s one piece of personal finance advice we think most people have heard, whether it’s from a family member or a financial advisor, it’s this:
“Pay yourself first!”
What does that mean? Well, if you have a savings goal, it means that you should make saving money an automatic thing. With an automatic savings plan, you’ll always be keeping your financial goals and aspirations in front of you, at the center of your attention where they belong.
It may help to look at what a lot of people do when they’re trying to save money, which is to take care of financial responsibilities and desires first, with saving as an afterthought.
For example, you might get a direct deposit of your paycheck and start by paying your rent or mortgage, your utility bills, your credit cards and any other expenses. You might also set aside money in your budget for entertainment and put whatever’s left over at the end of the month into savings.
When you automate your savings, you take a different approach. You decide how much money you want to save each pay period and move that money into your chosen savings account automatically when you get paid. Then you’ll pay your bills. Anything that’s left over can go toward discretionary spending.
Said another way, discretionary spending should be the afterthought in your budget. It should be the amount that varies after your real priorities—savings and financial obligations—have been taken care of.
Let’s review some of the many benefits of setting up an automatic savings plan
If you sometimes spend more money than you can afford, then setting up an automatic transfer to move funds from your checking account to your savings account can make it easier to resist temptation.
When you transfer the money you want to save to your credit union or bank account, you won’t be able to use the money to make debit card purchases, ATM withdrawals or write checks. Instead, it will live in your savings account where it can accrue dividends or interest.
If you’re like most people, your checking account doesn’t pay interest. If you do have an interest-bearing checking account, the dividend or interest rate is probably lower than what it would be if your money were in a savings account.
When you automate your savings and move money into your savings account with regular transfers, something that’s easy to do with online banking, then you can always be earning money on your deposit and grow your savings.
It Prioritizes Your Most Important Financial Goals
You have a savings goal and you want to meet it, but you find yourself struggling or not saving in favor of going out to dinner or spending on things that aren’t forwarding your personal finance goals.
With automated savings, your financial goals will always be front and center. The automation part of it means that money will go into your savings account on the schedule you specify and your savings will always be growing.
A lot of us struggle with willpower when it comes to spending money. Some also struggle with forgetfulness. They mean to transfer money into their savings account but they forget to do it. Having lost sight of the importance of saving, they’re more likely to spend that money without thinking about it.
One of the biggest advantages of automating your savings is that it removes willpower and forgetfulness from the equation entirely. You won’t need to think about saving money because it will happen automatically on the schedule you choose.
Present bias is a type of glitch in our brains known as a cognitive bias. It’s what makes us prioritize our present needs over our long-term goals. For example, it’s why you might be able to talk yourself into buying a new sweater instead of saving the money you need for a down payment on a new house or car.
In the same way that savings automation helps with willpower, it also helps you avoid present bias because the automated part keeps your financial focus on your future goals and financial well being.
Do you want to prioritize your savings goals with automation? Here are some ways to do it, including a variety of automation options to consider.
Here are some methods that can help you automate your savings and prioritize your goals:
These methods can help you prioritize and automate savings to reach your financial goals as quickly as possible.
It’s easy to automate your savings. Here are the steps to follow:
Identify your savings goals: You might need to create an emergency fund and save for a down payment on a house.
Automating your savings can help you keep your most essential financial aspirations at the forefront of your mind, helping you make the best possible financial decisions to reach your goals. Use the steps and tips we’ve created here to set up automation that works for you.
Are you looking for a financial institution that cares about your financial goals as much as you do? Addition Financial would love to have you as a member! Click here to read about the benefits of membership and join today.