How to Create an Automatic Savings Plan

Redirect part of your paycheck from checking to savings, and then leave it alone

Mixed race man counting stack of money
Credit: JGI/Jamie Grill/Getty Images

Do you have a savings account, yet find it difficult to find money to deposit into it? Do you have the best of intentions every month, but find you don't have enough left over after you pay your bills to pay yourself in the form of savings?

This isn’t an uncommon problem — most people find it hard to save. Generally, when you receive income it is either deposited directly into your checking account, or you make the deposit yourself, either at the bank, through an ATM, or via your phone.

And then your money heads straight to your checking account, so it's available to pay the seemingly endless stream of bills.

It's a vicious cycle, and one that's hard to break. But fortunately, there is a way to break it: an automatic savings plan.

Why Saving Money is Hard

You may not realize this (and may not feel that this is the case for you), but most people save money as an afterthought.

When they receive income (whether it's from a paycheck, freelance work, investments or other sources), their money is allocated to bills, groceries, rent or a mortgage. After paying for these expensive items, there may or may not be much left over to use for savings (or for fun). And in this scenario, the only time someone adds money to a savings account is when there's money left over from paying the bills at the end of the month.

Unfortunately, with this backwards thinking, there is almost never any money left over to save.

So how do you break out of this pattern?

The Answer: Automatic Savings

When you make deposits into a savings account automatically and regularly, you don’t have to think about it — the money is deposited before you have time to worry about expenses or how much money will be left over. Once you get used to it, you might not even miss the money.

Thanks to modern technology, it is very easy to set up an automatic savings plan.

First, you need a savings account. Open one at bank where you have your checking account if you don't already have one set up, and make certain your checking and savings accounts are linked.

If you currently have direct deposit through your employer, you will find the easiest (and most effective) way to establish your automatic savings program is to have part of your paycheck directly deposited into your savings account (the rest, as usual, will flow to your checking account to cover your bills). It doesn’t matter if it is $10 or $500 — simply setting this up automatically will ensure you save money every single time you are paid.

If you don’t have direct deposit, there is still an easy option available: set up an automatic transfer from your checking account to your savings account every time you're paid. For example, if you're paid every other Friday, you could establish an automatic transfer of a set amount of money from checking to savings to coincide with this deposit.

Just make sure you're aware of when the money will be deducted each month, or you may find yourself overdrawn.

Don't Touch the Money (Unless You Need It)

This last point could be the hardest: you'll need to learn to leave your savings in your savings account, unless you need it for an emergency. The idea is for you to get used to doing without that cash to cover regular, monthly expenses. If you tap into it every time you run a little short, there won't be anything left when you really need it. Set up your automatic savings plan and then leave the money alone to grow.

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