It’s no secret that having money in a savings account yields numerous benefits. Not only does saving money provide you with a financial cushion and the comfort of some breathing room, but it also offers options and freedom.
Despite how beneficial saving money is, it’s incredibly challenging to do so. One of the easiest ways to accomplish your savings goal is to automate your monthly savings plan.
Automatic savings, also known as auto savings, is the option to make saving money your number one priority by allocating your paycheck accordingly. Let’s review what this means in greater detail, and why you should enroll in an automatic savings plan today.
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Why is automatic savings important?
Before diving into the mechanics of how an automatic savings plan works, let’s start by looking at the importance of automatic savings. After all, why is an automatic savings plan so imperative?
Instead of depositing your net income into your checking account, spending that money on bills or expenses, and then remembering to transfer a certain amount of money over to your savings account at the end of the month, an automatic savings plan is the most important step for you.
An automatic savings plan takes a certain percentage, or dollar amount, of your paycheck and immediately deposits that money into your savings account. Therefore, the money that ends up in your checking account is yours to spend as you desire.
How much should I add to my automatic savings plan?
Understanding how much money to automatically allocate towards your savings account is a tough question to answer. A general best practice is to save 20% of your income, but that is not always possible for everyone.
Before deciding how much money you can realistically add to your automatic savings plan each pay period, you should first establish a personal budget. Figure out how much money you make each month. Then, calculate how much money you spend each month on essentials, like gas, grocery, electricity, transportation, rent, or other non-negotiables.
If you make $4,000 per month, and you have $2,500 worth of essential expenses, that leaves you $1,500 after paying your bills. You don’t have to save all of that money, though. After all, you want to experience life! But placing anywhere from $800 to $1,000 into an automatic savings account is an option worth considering.
If you are struggling to manage your money and you find yourself drowning in debt or expenses, look at your expenses and see if you can remove any of them. Perhaps you realize that you’re spending too much money eating out or buying clothes on a monthly basis. Dialing back on some of those fun-related, non-essential expenses will allow you to save more money.
3 types of automatic savings plans
There are 3 main types of automatic savings plans. These plans allow you to save more money, and can be the best way to save money in the bank.
Automatic transfers from checking to savings
First and foremost, you can enroll in an automatic savings plan with your payroll provider. Instead of having your paycheck deposited into your checking account, you can allocate a specific percentage or a fixed dollar amount of your paycheck and have that money deposited into a savings account each month. The rest of the money will be deposited into your checking account.
Automatic transfers from checking to investment portfolio
Another great option is to set up automatic transfers from your checking account into your investment portfolio. There are various ways to make this possible. Not only are you saving money when you choose this option, but your money will also build over time via interest.
Last but not least, take advantage of your employer’s retirement plan or 401(k) option. There are many employers who will offer to match your 401(k) up to a specific percentage. For example, if you contribute 4% of your income to your 401(k), your employer might also contribute 4% as a match to yours. Therefore, you’ll be saving 8% rather than your 4% alone.
Save more money today
Whether you choose to set up automatic transfers, move money directly into investment accounts, or leverage your employer’s 401(k), the common theme is that these are all ways to save money, which will provide you with financial security and freedom. Understandably, saving money may seem impossible to do. But taking the first step, even if it’s a little one, will make a tremendous difference. Saving more money will provide you with a great deal of confidence, and it can also allow you to live a life that is on your terms.
How do I automate my savings?
There are a variety of ways to automate your savings. One of the most powerful ways to do so is to leverage an automatic savings plan that also invests your money. Therefore, your money is working for you!
Can I withdraw my automatic savings?
If an emergency happened and you needed to withdraw money from your automatic savings plan, you can always do so.
Can I pause my automatic savings?
You can absolutely pause your automatic savings plan at any time.