Step-By-Step Guide to Automating Your Savings

Consistently Contribute to Savings

It's easy to forget to save. With automatic savings, you ensure a regular contribution to your account.

Save Time and Effort

Say goodbye to manual transfers and reminders. Once automatic savings are in place, the process runs seamlessly in the background, freeing you from another task on your financial to-do list.

Prioritize Long-Term Growth

Automation ensures money is saved before you even consider spending it. You can prioritize long-term financial growth over short-term desires by eliminating the choice between saving and spending.

Meet Your Savings Goal

Setting clear financial goals is crucial. Automatic savings simplify contributions, making tracking and achieving these goals easier. You can monitor your progress and adjust contributions by designating specific accounts for each goal and automating deposits.

Harness Compound Interest

Automatic savings in high-yield accounts can help you tap into the power of compound interest. Your savings can potentially grow exponentially over time if you consistently contribute to an account earning higher interest rates.

Build a Saving Habit

Automating your savings lays the foundation for a disciplined financial future. Over time, this habit becomes second nature, solidifying your commitment to financial growth.

Set Savings Goals

Start by being intentional in listing all your short-term and long-term financial aspirations. Be explicit about what you're saving for, such as an emergency fund, a down payment or a vacation. Once you've identified these goals, prioritize them based on their urgency and importance. Make your goals quantifiable by determining the exact amount you aim to save and the timeline for achieving it. If you're unsure about specific goals, consider adopting the 50/30/20 rule as a guideline: allocate 20% of your net income directly to savings.

Budget for Each Goal

If you have multiple objectives, create a budget for how much you want to allocate for each, considering their urgency and your specific needs. Consider opening separate savings accounts for distinct goals to streamline your savings further. Some banks even offer the convenience of segmenting your balance within a single account, allowing for organized tracking. Commit to consistently directing a portion of your monthly salary towards these objectives to ensure steady progress. Remember, the beauty of automation is its flexibility. Once you achieve a particular goal, like fully funding your emergency account, you can easily switch or adjust your automatic plan to target another financial milestone.

Pick the Right Savings Account

Select the appropriate savings account to maximize your financial growth. If you don't have an account yet, starting one with your current bank might be straightforward. When comparing accounts, prioritize fees, withdrawal limits, and ease of access. Equally important is the annual percentage yield (APY), which indicates your potential returns from compound interest. For those with diverse goals, consider opening multiple accounts for better organization.

Set Up Automatic Transfers

After securing the right savings account, set up your automatic savings plan. Many employers offer options like direct deposit splits, allowing you to allocate a portion directly to savings or Emergency Savings Accounts (ESAs). You can talk to your HR department to arrange this. Suppose your employer doesn't offer these features. In that case, you can explore bank or mobile applications to help automate your savings, such as Chime, where users can opt to have a predetermined percentage of every paycheck automatically transferred to a savings account. You should also plan your withdrawal strategy, deciding when and how to access your saved funds.

Monitor Regularly and Adjust as Needed

While automation streamlines the savings process, it doesn't mean you should "set it and forget it." Periodic reviews are crucial to ensure your savings are on track. Dedicate monthly or bi-monthly time to assess your savings using online banking or mobile apps. Downloading your bank's mobile banking app can provide easy access and a clear overview of your savings progress. Setting reminders for these reviews can be helpful. Regular check-ins allow you to celebrate your financial milestones and pinpoint areas needing adjustment. If unexpected events alter your financial landscape, adjust your automatic transfer amounts or realign your goals accordingly.

Setting and Forgetting

While automation is meant to simplify the process, it doesn't mean you should neglect regular check-ins. Schedule periodic reviews of your savings accounts to ensure the transferred amounts align with your current financial goals and adjust as necessary.

Not Adjusting for Income Changes

Failing to update your savings contributions when there's a change in your income can lead to missed savings opportunities or potential financial strain. Whenever you receive a raise or bonus or experience any significant income change, revisit your automatic savings settings and consider increasing (or decreasing) your contributions proportionally.

Overlooking Fees

Some accounts or platforms may charge fees for automatic services, which can eat into your savings over time. Always be aware of any fees associated with your savings or investment accounts. It might be worth shopping around for a more cost-effective option if your current fees seem high.

Being Overly Aggressive

Setting your automatic savings rate too high can strain your monthly budget, leading to potential overdrafts or the need to dip into savings. Start with a conservative savings rate and adjust upwards as you become comfortable, striking a balance between saving and having enough for monthly expenses.