Nearly half of Americans would either have difficulty covering a $400 unexpected expense or wouldn’t have the means to pay the expense at all, according to a 2021 report from the Federal Reserve. No matter your current financial situation, saving money is an important success principle. Whether you’re building an emergency fund or stockpiling cash to make a down payment on a house or a wedding, saving money is a smart move.
When you put saving money on autopilot, meeting your financial goals becomes even easier. You’ll no longer have to stop and think about saving funds or making a transfer. Instead, these things will happen automatically. To understand how to automate your savings, keep reading. You’ll find plenty of strategies and resources to help you save even more.
- Automatic savings strategies help you save more money with less effort.
- You can use tools such as automatic transfers, split direct deposits, and round-up apps to help you meet your financial goals.
- If you automate your savings, watch your bank balances so you don’t overdraw and keep an eye on any fees associated with the tools you use.
Why You Should Automate Your Savings Process
You can automate your savings by setting up systems that automatically deposit some of your money regularly, such as into a savings or investment account. You can use automatic savings strategies to help you meet your short- and long-term financial goals.
While you can make these transfers each month on your own, here are three benefits to automating the process:
- You don’t have to remember to move your money—which is helpful when life gets busy.
- You’ll build the habit of saving, which can help you save even more.
- It’s simple to do, and once you get it set up, there’s not much you have to do except watch the balance on your savings accounts grow.
If you’re ready to give automatic savings a try, here are several strategies that can help you do it easily and successfully.
Automatic Saving Strategies and Tools
You have several options for creating an automatic savings plan; there isn’t a one-size-fits-all model for saving. The goal is to make a plan that fits your financial needs and goals and then find the best tools to make them happen. Here are a few helpful suggestions.
Make Automatic Transfers Through or to Your Bank
Check with your financial institution to see what programs it offers to help you move money effortlessly. Many allow you to set up automatic transfers between accounts (most commonly from checking to savings, or even to another bank or investment account). This is a simple way to move money when you want it to move—and potentially grow.
Most banks have streamlined the setup process for such recurring account transfers, often letting you complete them upon logging in to your online bank account or your bank’s app.
Scheduling transfers the day after your payday might help ensure that you always have enough money to cover the transaction. The extra time gives you a cushion in case your direct deposit doesn’t come through as expected.
You can also move money with one of many third-party apps designed to help you put saving on autopilot. Once you download the app you want, you may need to permit it to access your bank accounts. Then you can set it up to automatically transfer funds to the savings account of your choice when and how you see fit.
Round Up Purchases and Save the Rest
The concept of “rounding up” is an easy way to put your change to good use. Some financial institutions allow you to round up your purchases to the nearest dollar when using your debit card. The change that you’re adding then gets deposited into your savings account. So if, say, you make a purchase for $5.62 using your debit card, you’ll be charged $6. The extra 38 cents will automatically get moved to savings.
A number of apps will transfer your extra money into a savings, checking, or investment account, as well. (Some even send payments directly to your credit card servicer or student loan provider if you so request.) These include:
Though the details of the investment feature may vary from app to app, some apps can save your change until a certain dollar amount is met (in the case of Acorns, at least $5 per day, week, or month). That money is then invested all at once into exchange-traded fund (ETF) portfolios. These frequent small investments can pay off over time.
While saving a few cents at a time might not seem like a lot, small amounts of savings really do add up. Rounding up the change from a $2.30 cup of coffee three times a week could add up to more than $100 over a year.
Make Your Paycheck Work for You
If your paycheck is automatically deposited in your account, ask your employer if you can split your direct deposit between your checking and savings accounts. Simply fill out the required paperwork to make your request and indicate how much you’d like to go into each account.
Does your employer offer a work-sponsored retirement plan? Consider filling out the paperwork with your HR department and decide what percentage of your salary you’d like to earmark toward your future. The advantage of work-sponsored retirement plans is that many employers offer to match your contribution. If yours does, you’ll want to contribute up to the match limits to take advantage of the free money being invested on your behalf.
Limitations of Automated Savings
Setting up an automatic savings plan can help you reach your financial goals faster. But there are a few things you need to know before you make the move.
Watch Your Balances
If you don’t keep an eye on your account balances, your automatic bank transfer could cause you to dip into the red and get hit with an overdraft fee. Make sure you don’t drain your accounts in an effort to save. When scheduling your automatic transfers, also take into account other items you have on autopay (such as utility bills) and when they will be deducted. This will help you avoid a negative balance.
Check for Fees
Always take time to read the fine print for any automatic services you use. You might be charged for using an app or making recurring transfers. You don’t want to be surprised by these types of expenses.
Pay Attention to Your Finances
Part of the appeal of creating an automated savings program is that it saves you time and effort. You don’t even have to think about money and some of it still goes to savings. However, this benefit can also be a drawback. Even when things are on autopilot, paying attention to your finances is essential to ensure you’re making the progress you want and meeting your goals. Plus, checking in regularly on how much you’ve saved can help you stay motivated to continue meeting them.
Automatic transfers can go wrong. If you aren’t checking your transactions, you might miss a duplicate transfer or an incomplete one. Regularly verify that things are working as expected.
The Bottom Line
Putting your savings on autopilot can help you keep your financial goals on track. You can save more money with less effort, and you won’t have to worry about forgetting to transfer money to savings. It’ll happen automatically month after month.
Frequently Asked Questions (FAQs)
What’s better, investing in an automated savings app or an index fund?
Both can be part of a healthy financial plan. Pay attention to your return on investment. Which one works best for you? Consider your savings timeline. Investing in index funds tends to be a long-term strategy (often used for retirement savings). Automated savings apps might be better for shorter-term goals (like a vacation fund). Know what fees are involved with each investment strategy you use.
What day of the week works best for setting up automated savings?
Automated savings transfers through your employer or bank should come right after your paydays. That way, you have money in your account to move—and if your payday is a day off, you won’t incur overdraft fees. Think about which day works best for you financially and go for it.