Consistent saving is one of the cornerstones of financial discipline. However, funds earmarked for your savings account can sometimes end up going toward other expenses. This is where an automatic savings plan might help. By setting up your savings to run like clockwork, you may be able to streamline your savings and better reach your personal financial goals. Let’s learn how to set up an automatic savings plan and what to know first.
What is an automatic savings plan?
An automatic savings plan generally involves regular deposits of a predetermined amount into a savings account. Many automatic savings programs operate on a consistent schedule, such as monthly or biweekly, and can follow a variety of methods. Some people might choose to automatically transfer a fixed percentage of their paycheck or a set dollar amount.
Benefits of automated savings
Learning how to save money each month can be challenging for a variety of reasons — impulse buys, high debt and unexpected expenses can sometimes chip away at your savings targets. This is where an automatic savings plan may help streamline your savings in a few ways.
- Simpler way to save: Without manual deposits to make, an automated savings plan might mean less hassle and more consistent savings.
- Financial discipline: With certain automatic savings programs, such as those that automatically deduct from your routine deposits, you may be faced with fewer temptations to spend funds earmarked for other savings goals.
- Progress: With less active effort required after initial setup, an automatic savings plan might offer you an effective “set it and forget” approach to building your savings in the background while you focus on other aspects of managing your money.
Taking the steps to automatic savings
An effective automatic savings program is one that aligns well with your personal goals and financial situation. Wondering how to set up automatic savings for yourself? Here are a few tips to help you get started.
Know your goals
Starting with clearly defined goals can help frame your savings decisions. Are you saving for a specific purpose, like a vacation, emergency fund or a major purchase? Understanding what you want to save for can help inform a more tailored strategy.
Set a budget
Assessing your income and expenses can help you determine how much you can comfortably save each period. Taking the time to review your income and expenses and knowing where you can spare funds is critical to establishing a realistic and sustainable savings plan.
Pick a savings account
There are many types of savings accounts to choose from, each catering to different savings goals. Understanding the features, associated fees and interest rates for the savings account you’re considering can help you align your savings plan with the right account type. Once you have a savings account in mind, you typically have a few options to automate your savings:
Set up direct deposit
One way to set up an automatic savings transfer is to arrange for a direct deposit of a portion of your paycheck into your dedicated savings account. You can usually set this up through your employer’s payroll program or by speaking with a member of your human resources team.
Use automatic savings tools
Your bank may offer autosave tools through their online or mobile banking platforms that allow you to set up transfers of a set amount or percentage of your checking account balance to your savings account at regular intervals.
Schedule bank transfers
You can typically speak with a bank representative to schedule regular transfers from your checking to your savings account. You might consider setting up this transfer to coincide with your paydays to ensure consistency and that your savings target is met ahead of time.
Round up your savings
Some banking apps and online banking services offer the option to round up purchases to the nearest dollar and transfer the difference to your savings account. This helps you integrate savings into your daily spending in a way that is flexible and helps add a little extra to routine savings.
Track and adjust
Taking time to regularly review your savings progress and adjusting your contributions as needed can help keep your automatic savings program in line with your goals and current financial situation.
Seek professional advice
If you’re unsure about the best approach for your personal financial circ*mstances, you could consider seeking advice from a qualified financial professional.
In summary
An automatic savings plan might take some of the hassle out of saving and help you build a healthy nest egg over time. But setting up any automatic savings program involves some careful consideration. By reviewing your finances and aligning your savings plan with your goals, you may be better prepared to consistently save and achieve your personal milestones.
