Putting money aside is tough. Children, groceries, gadgets and a host of pricey hobbies all compete for that extra cash you might have during the month.
It’s challenging to intentionally set aside that earned money and tuck it away for a rainy day. It’s even more difficult if your self-control is limited (my indulgences include sampling whiskies and scotches, plus an ever-growing assortment of baseball cards).
From what I’ve learned, the simplest way to consistently save each month is to remove the decision from your daily routine. From scheduled transfers between accounts to user-friendly apps that save automatically, automation enables you to build savings without constant thought.
Below are several of the top methods to automate your saving.
1. Use Apps to Make Saving Easier
Being into technology, this has been my preferred saving approach. Here are a few services that automate the process.
Acorns is an application that rounds up your purchases to the nearest dollar and deposits the “spare change” into an investment account. You hardly notice it happening. Pick from aggressive, moderate or conservative preset “funds” for your investments.
I’ve had an Acorns account for several months and have gathered over $200 in savings without actively watching it. Returns are modest (around 5% on average) but still better than typical savings account interest. When you need to withdraw funds, they appear in your account within a few days.
Acorns charges $1 per month if you have less than $5,000 invested, or 0.25% annually for larger balances. Students or users under 24 can often use it for free.
2. Make the Most of Pre-Tax Money
If you’re fortunate enough to receive retirement benefits from your employer, be sure to use them fully.
Making pre-tax contributions to a 401(k) or 403(b) is smart because not paying taxes at the time of deposit means more of your earnings go into savings. For instance, if you put $500 gross into a 401(k), the full $500 is deposited, whereas on your take-home pay you might only see $425 or less after taxes, depending on your bracket.
Many employers that offer a 401(k) will also match contributions, meaning for every dollar you contribute, the company adds some too. I’m fortunate to have a 2-to-1 match up to 4.5%, so if I contribute 4.5% of my pay each month, the company contributes 9%. That’s a significant boost beyond my base salary! While my employer’s match is generous, check what your company provides.
Some organizations won’t begin matching until you’ve been there six months or a year, but make sure to contribute your share of the matchas early as possible. If you get used to living on your full salary, it can be tougher to adjust your budget later when the match begins.
Start saving your portion from the outset; when the match starts, the only change you’ll notice is larger retirement savings. To estimate how your 401(k) can grow, try a calculator suited for that purpose.
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3. Schedule Automatic Transfers to a Separate Savings Account
Open a savings account that’s separate from your checking — perhaps even with a different bank.
Why? One of the hardest parts of saving is resisting the urge to dip into your savings after you’ve put money there. If you can easily view your savings balance and transfer it back to checking, you’re more tempted to do so when something you want comes up.
I suggest a savings account with an online bank like Ally, Synchrony or Capital One. They make online banking simple and let you set up recurring transfers.
Begin with a modest amount that won’t strain your cash flow and arrange transfers to align with your pay schedule. For example, if you’re paid every two weeks, schedule an automatic transfer every other week.
I personally move $75 a week into my Ally savings account. This lets me save steadily without a large lump-sum withdrawal from my monthly paycheck. You could also transfer as little as $10 every few days. It compounds quickly, and it’s easy to maintain at least $10 in your checking to cover it.
4. Take Advantage of Direct Deposit
The best saving strategy is to behave like the money never existed.
If your employer offers direct deposit, route a portion of each paycheck directly into a savings account.
Many companies allow direct deposit to multiple accounts. That way, you never “see” that slice of money, because it never hits your checking balance — it’s gone before you have a chance to spend it. When I began my current job, I directed $100 from each paycheck into my online savings.
It’s ideal to start this method when you take a new job or receive a raise; as someone told me, “If you learn to make your budget without that money every month, you’ll barely notice it’s missing.”
Treat that money as “extra,” and plan your spending around whatyou actuallyreceive in checking, instead of trying to budget from your gross pay and hoping something remains — often there won’t be.
Your Turn: Are you using any of these tactics to save automatically? Have other tricks that work for you?
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Alex Mercer is a 29-year-old parent of two working to build a nest egg, clear past debts and savor today.
