Many people have trouble getting started with their financial plans. And even after they get started, in can be extremely difficult to be consistent. That’s why it is important to take advantage of various ways to set up an automatic savings system.
You’ve read about the advantages of automatic savings on this site in the past, so now we are going to look at a few ways to make this happen. Let’s start with the basics and then move our way up to solid retirement planning.
Build An Emergency Fund Through Automatic Savings
In order to avoid having to rely on borrowing money if an unexpected expense comes up, you should be sure to establish an emergency fund. This is a special account (or allocation of money) that you are not to touch except in the case of an emergency.
When you plan to establish an emergency fund, it can seem like everything around you is fighting you. Many times, other things will pop up and cause you to either take money out of your savings, or divert your contributions elsewhere.
I have found that if you create your emergency fund using automatic savings, it is much easier to reach your goal. You can do this in one of two ways (of course, you can find other ways, but these are the most simple).
First, you can have a portion of your paycheck deposited directly into an online savings account. This way, the money never hits your primary checking account, and you are not tempted to spend it on other things. If something comes up that may not constitute a true “emergency”, you will try to think of other creative ways to handle it – rather than simply not make your periodic savings deposit.
The old saying, “out of sigh, out of mind”, is definitely true when it comes to money!
If your employer doesn’t allow you to deposit your paycheck into two separate accounts or banks, then you can set up automatic transfers from your checking account on payday. This is what I do, and it works very well. Once my transactions clear for that day, my check is deposited and my emergency fund contribution has been transferred. Again, the money isn’t in my primary account long enough for temptation to set in!
Automate Your Debt Snowball
If you are using an online bill paying service – either through your bank, or as part of your credit card benefits – it can be very easy to automate your debt repayment plan.
Once you decide which creditor to pay off first, and how much extra you want to send to them, just go online and set up those additional payments as a recurring plan. This way, you don’t have to worry about writing out a check each month or pay period – you remove the chance of either forgetting to make some of the payments, or being tempted to spend the money on something else!
Many people are worried about their retirement savings – especially after a couple of really bad days for the stock market. However, the worst thing you can do is to stop saving. It can be very easy to give in to fear and apprehension over investing for the future, which is why setting up automatic savings is so vital here.
If your employer offers a 401k, and you are not contributing, you are possibly throwing away free money. That is because most companies will offer a 401k employer match of up to 6% of your annual salary! The money will be automatically transferred out of your paychecks, up to the current 401k contributions limits ($16,500 or $22,000 if you’re 50 or older). You don’t have to worry about any type of temptation here, the money is taken out before you even get your pay!
This makes it extremely easy to put your retirement savings on auto pilot (at least the contributions), and helps you to fight the urge to take that money and spend it on a current indulgence.
Build Up Your IRA
If your job does not offer a 401k, or if you desire to save even more for retirement, all is not lost. You can also set up an automatic savings plan to fund an IRA. IRA contribution limits are up to $5,000 for those under the age of 50, and $6,000 for savers 50 years of age and older (if they take advantage of the $1,000 catch up contribution limit)!
You can go through most banks, credit unions, and even discount brokers to set up an Individual Retirement Arrangement. They will allow you to set up automatic transfers from your bank account at regular intervals, directly into your IRA.
This is another way that you can save for your retirement, without having to wrestle against all of the alternatives for your cash!
Many of us have great plans and intentions when it comes to handling our money. However, we can find it very difficult to implement those plans. By taking a few minutes, or even hours, to set up transfers to online savings accounts, split direct deposit, and saving for retirement, you’ll be able to reach your goals without even thinking about it.
It’s almost as if you become able to trick yourself into saving money!
Thanks–this is very helpful. I found your site on a top-ten list by 1dental.com. This is really practical and I like that you come from a biblical perspective.
Automated bill payments help, too.
Jenna, Adaptu Community Manager says
Completely agree with you. So easy not to spend money if you never see it!
Automation is the way to go accross the board, savings, retirement, bill paying. Automatic is easy, the less you have to think about it the more likely it is to happen.
On the emergency fund, I think it’s hard to build this up even through automatic savings. It’s hard to develop conviction about an emergency fund until it gets large enough to be a credible buffer for a conceivable emergency. It might help to fund it initially with a lump sum, like a tax refund or bonus. Somehow seeing a suddenly large balance makes it real. Add automatic savings, and the fund can really take off. Just a thought…
I found your blog through the 1Dental.com blog and really like the suggestions you give. My husband and I actually have money automatically put into an online savings account from our paycheck. I’m so glad we do because if we were trying to do it manually every month, we’d never end up saving the money! Thanks for your helpful tips!