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8 Ways to Automate Your Savings
It can be stressful to be one of the millions of Americans who doesn’t have enough money in savings to cover a $1,000 emergency.
You’re out there hustling, but you just don’t quite have that savings instinct locked down. Sure, you have enough to pay bills and cover expenses, but with a little bit of budgeting, you might be able to pay yourself more, too.
According to financial planner David Blaylock, “paying yourself first” requires a bit of a mindset shift, especially if you’re used to living paycheck to paycheck. “Paying yourself first means saving before you do anything else,” Blaylock explained to LearnVest.
“Try and set aside a certain portion of your income the day you get paid before you spend any discretionary money. Most people wait and only save what’s left over—that's paying yourself last,” he added.
Here are 8 ways to get your budget on track, automate your savings, and start making money on your money.
1. Budget, budget, and budget some more
When money’s tight, folks know exactly what’s coming in—and what’s going out. But plenty of us can do a better job of identifying where our discretionary spending winds up.
To get a better handle on your finances, use a budgeting app like Mint or a full service like You Need a Budget.
Not only do these services help you visualize where your money’s going, but they also help you set up spending and savings goals, so you know how much money you can safely put aside for a rainy day.
Without an accurate idea of how much you’re able to set aside each month, it’ll be difficult to automate—or automation might cause unwarranted stress. So bite the bullet and start with your budget. It will help you save more in the long run.
2. Start small
There are plenty of savings strategies out there. Most personal finance experts recommend the 50/20/30 rule, where the majority of your income is funneled toward expenses and discretionary spending, with the remaining 20 percent going toward savings.
If you don’t have a steady income, this can be challenging. That means it might be better to start small, says Mike Ouyang, a spokesperson for LendingTree.
“Perhaps start with only 5 percent of your paycheck,” Ouyang told the Discover blog. “Then, at the end of the month, increase that amount by 1 percent until you are satisfied with your monthly savings goal or reach a target that fits your budget.”
While this tactic may mean that it takes longer to build savings, putting something toward the future is better than saving nothing. As your income grows, you can re-adjust your savings targets and increase to 10 percent—or more.
3. Set it up with your bank
Most checking accounts have automated functions built into them, including bill pay and transfers. That means you can set up automatic withdrawals from your checking to your savings account twice per month to help your savings grow.
It takes a little bit of work to get all of your accounts linked up, but mastering automation features is worth the initial time investment, says finance reporter Kathleen Elkins.
“Once your accounts are linked, you can automate your transfers and payments, meaning your money will automatically be sent to your investment accounts, savings accounts, and your creditors,” Elkins explains at Business Insider.
To maximize your savings, ask if your banking service provides a high-yield savings account with an interest rate of 1% or higher. These accounts help you earn interest on your savings, which is the biggest trick to saving more over time.
Want to get technical about your automation plan? Check out this savings infographic from Ramit Sethi, author of “I Will Teach You to Be Rich.”
4. Set it up with your employer
Already know exactly where your money is going? Divert some of your direct deposit directly into your savings account, so you never feel tempted to spend it.
According to financial advisor Anna Sergunina, your employer can help you save as you’re setting up your direct deposit—you just need to ask.
“Many employers offer a way to set up automatic deposits of your payroll into multiple checking or savings accounts,” explains Sergunina at NerdWallet. “That way, you can distribute your paycheck into each account based on your expenses.”
Since this tactic will initially feel as though you’ve reduced your take-home pay, make sure you’ve accurately budgeted your monthly expenses. That way, you don’t have to transfer money out of savings to bail out your spending habits—defeating the purpose of paying yourself first!
5. Use a saving service
If you’d rather experiment with more automation, there are plenty of apps on the market designed to help you out. Here are some of the most popular ones:
- Mint: Set savings goals and visualize your spending and saving all in a single, free app.
- Simple: Like Mint, Simple allows you to set individual savings goals. But because the company is also a bank, these goals are tied to your Simple checking account, which can have multiple savings buckets. You’d have to be willing to change banking services, or experiment with a separate checking account to use this one.
- Acorns: Plenty of apps use the idea of “spare change,” or rounding up purchases to the next dollar, so you can save the difference. Acorn actually lets you invest this money in the stock market, so you can experiment without worrying about losing a big chunk of change.
- Digit: By tracking your spending, Digit withdraws small amounts of money you won’t miss and funnels them into a special savings account on their platform. You can also set up multiple savings goals and automate how much money goes toward those goals.
- Qapital: While this app is similar to Digit, you have more hands-on control over how much money gets deducted from your account.
6. Earmark “extra” money for savings
If you have an aggressive savings goal, try to earmark any “extra” funds, like raises or tax refunds, into your savings. This is a mindset shift, rather than an automation trick, but it’ll add up to more money saved in the long run.
The Money Wizard, a young financial blogger based in the Twin Cities, told Business Insider that this tactic helped him divert more of his income directly into his retirement account.
"By saving off the top, an amazing thing will happen," he explained. "You won't even notice all the missed money, and you won't even have to adjust your lifestyle to meet your savings goals. Your spending will instead mold around what's left, leaving you feeling like you're living just as great of a lifestyle, all while saving a fortune."
Simply calculate how much extra money per month your new raise amounts to, and automate that amount directly to your savings until you reach your goal.
7. Funnel your money into the right kind of account
Don’t just let your savings linger in an account that’s not working for you. Savings accounts connected to local banks don’t often have high interest rates, which means you need to take some time to sleuth out the accounts with the best offers.
“When you’re comparing high-yield savings accounts, you’ll find the best rates at online banks because they have fewer overhead costs and can pass those savings on to customers,” explains financial reporter Barri Segal at GoBankingRates.com.
“A high-yield online savings account is pretty easy to find, but not everyone is comfortable banking online,” she adds.
Once you open an account with a return of 1% APY or more, make sure all of your automated systems funnel money there, so you can earn more money on your money.
Need some suggestions? Check out this list of high-yield accounts from NerdWallet.
8. Cut costs—without hassle
Sometimes the best way to save is to cut costs. And, thankfully, there are new ways to automate this task, too.
Like Mint and other budgeting services, Trim analyzes your spending habits and suggests places where you can pare back, says New York Times financial reporter Ron Lieber.
“Once Trim performs its analysis, you get a text message with a list of all your recurring charges,” Lieber explains. “You reply with ‘Cancel X,’ and then the company takes it from there, making the request on your behalf to the service provider.”
This is a great feature for those who want to nip discretionary spending in the bud, or simply to re-evaluate where your money is going.
Once you’ve cut costs, it’s time to put that saved money to use. Make sure you automatically direct your savings into your savings or retirement accounts, so you can make better use of those funds.
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