Saving is always a challenge, especially if you’re living on a small income and have a lot of financial obligations. It’s easy to just focus on the bills and expenses while forgetting all about putting some money away for future financial goals.
This can come back to bite you down the line, which is why it is important to make savings a habit.
Modern technology and different financial products have made it easier to save. You can even automate your savings and ensure some portion of your income is stored away for future use.
Here’s an in-depth look at savings automation:
What Does Automating Your Savings Mean?
An automatic savings system is a series of instructions that transfer money from a primary spending account to a savings account or investment account at regular intervals. You can set your account up to transfer a specific amount of money to a different account immediately after you get your salary.
This helps you stick to a smaller budget, reduce frivolous expenses, and ensure you have some money as a back up for future financial requirements.
Many financial experts consider this a slow, but relatively risk-free way of accumulating some wealth or financial comfort. It’s not difficult to automate your finances with some planning and careful study of all spending habits.
Best Ways To Automate Savings
There are several ways to start an auto savings system. Before creating the system, it is important to understand your current financial position. Begin by listing your entire monthly income from different sources.
Compile a list of essential expenses and mandatory financial obligations. Then think about how much you want to save every month and set an annual savings goal.
Once you understand your finances, use one or all of the methods listed below for saving money:
Automatic Savings Account
Create a separate automatic savings account or a deposit account. Having the money out of your regular expenses account will help keep it secure because you’ll have to add extra steps to get money from that account.
Additional steps are a good deterrent and will help control spending. You can set up a high-interest savings account separate from your regular checkings account.
Putting all your money in one, fully accessible account is a quick way to compromise saving goals.
Certificate of Deposit accounts offer much higher interest rates. Their biggest disadvantage is that the money is locked for a specific period of time.
The best way to get around this is to create a ladder of CDs that mature at different dates so you save money but have access to previously saved money at the same time.
Depending on your income, you can choose six-month, annual, or other such CD lock-in terms.
Multiple Savings Accounts
This is a great way to save money and keep track of all expenses. Many banks allow customers to create multiple savings accounts in the same user account.
You can set up different ones for vacation savings, house repair fund, emergencies, etc. It’s easy to automatically transfer a set amount to these accounts after the salary is credited into the account.
It’s easier to leave the collected money untouched unless it is needed for the designated purpose.
Split at The Source
Many companies provide the option of transferring the employee’s salary into two different accounts at the source. They will split the salary amount and transfer some of it to your checkings and some of it to your savings.
This takes the process of transferring money to savings out of your hands.
Automatically Save Windfalls
If you have any unexpected income from bonuses, tax refunds, pay raises, and rebates, save it automatically instead of spending it. This is the best and easiest way to improve your wealth and have a sizable fund to fall back on.
Even small amounts can add up to become substantial over time.
Automating Your Finances Is An Expensive Mistake (If You Don’t Keep an Eye On It)
Automating the entire financial system is different from automating just savings. This involves paying all financial dues like bills, loan repayments, mortgage, etc., automatically as well.
These payments will be deducted at a set date without requiring any input or confirmation from the user. Many people consider this a set and forget process, but that’s very risky.
It’s possible to overpay, trigger an overdraft, or lose track of money being deducted.
Financial experts also observe that people become a little too complacent or free with their money when all bills are automated. It is important to check the active accounts, bills deducted, and amount spent regularly to keep real track of your finances.
It is also important to keep a clear record of bills paid and make sure to remove a service from the autopay list if you’ve stopped using it.
This system can also be challenging for people with multiple sources of income coming in at different times.
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