Savings can be very hard to put together. It’s always hard to just make the first contribution after opening the account. Discipline helps out, but it is still difficult. This is why automatic savings plans prove useful. Automatic savings plans are some of the most fruitful financial tools in the world.
An automatic savings plan is exactly what it sounds like. It is when money is automatically moved from your checking account or paycheck directly into a savings account.
There are obviously many benefits and many ways to set this up.
Firstly benefits are fairly straightforward.
After setup, there is no effort needed to build the savings. Once you start automatic transfers, who might be made every week or two, you don’t have to give it another thought. This can be helpful if you tend to second-guess your saving decisions, such as whether you actually need to save 5% or 10% of your income this month. This way you can avoid doubting yourself and keep the savings flowing.
Another way this helps is the boost the discipline in the spending aspect of your finances. You’ve always heard “pay yourself first.” A lot of people have trouble with that so the automatic savings is the perfect solution. When the savings are schedule to come out as soon as earnings hit the bank, the spending money and savings never really mix.
One of the other major benefits, it keeps the accounts separate. Separation is key for savings. Of course, most people do have some kind of link between their savings and checking. This can hinder the savings if there is automatic overdraft protection. Transferring funds this way can help you limit your spending based on what’s available in your checking account. Plus, if you want to tackle multiple savings goals at once, such as putting away funds for a vacation, retirement and emergencies, these transfers can help you contribute to them consistently. You can stay organized and not have to worry about forgetting a transfer one week or losing track of your goals.
How to Get Started
To start one of these plans you have a couple things you need.
First and the most obvious, a savings account. Banks are normally to go to for starting savings accounts, but my preferred route is credit unions. There is usually a higher dividend, less overhead, and the members typically own the credit unions.
Direct deposit can be a blessing because a lot of companies have an option when setting up the direct deposit to divide it up by percentage. Between 5%-10% is the standard for starting out savings, eventually getting to 25%, while sounding astronomical, will have you prepared for retirement rather quickly.
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.
Remember this savings is for emergency or after retirement. Keep in mind when the automatic savings hits, it’s not really your money. That will help keep the savings in proper perspective.
New Age Saving
Another more modern approach is automatic savings apps. They are the way the millennials are moving.
There are numerous apps. Qapital, Digit, Acorns, and Dobot are just a few of these apps.
Qapital is a hybrid automatic saving app that allows you to save based on goals. You can decide what triggers a deposit, and Qapital will do the work of getting that money into a savings account. The app is free and FDIC-Insured! It’s the best option out there when it comes to app savings.
Digit was an incredible app that analyzed savings and saved a little every few days. It was such a negligible amount that turned out to add up to a lot it was impressive, but they kind of derailed their momentum when they started charging users. It’s still a good app, but not like it was.
Acorns is straightforward. It rounds up every purchase to the nearest dollar. It also adds an investing component to the traditional savings aspect. It will ask you questions about your income, net worth and risk tolerance to determine what kind of investments to choose for you. For those interested in investing but afraid or unaware of how to start, Acorns is a good first step. Like other investment programs, Acorns charges a $1 monthly fee if your balance is less than $5,000 or a .25% annual fee if your balance is more than $5,000.
Dobot is another savings app that saves behind the scenes. It utilizes a safe saving algorithm to make sure that you only save what you can afford and don’t see your account overdrawn. You can also turn it on and off at any time if you need to.
There are so many options; there really isn’t an excuse to not set up an automatic savings plan now that you’re aware of the numerous options
Don’t forget that there is a disadvantage to a savings account. It’s associated with discipline. Quick and easy access to a savings fund is tempting for some account holders, which can make long-term saving difficult. Savings accounts generally have the lowest return when compared to other types of investments. Most savings accounts also have a minimum balance requirement. If the account balance falls below the minimum amount, the account holder incurs charges.
When considering the future, savings is essential. It’s truly disappointing to know how much everyone has struggled in savings. I have struggled myself and having the Qapital app has helped me greatly.
Automatic savings are perfect for everyone who needs savings. There’s a little secret about who needs savings, everyone. Everyone needs savings to make sure they have a safety net for when the bad events come.
Start the savings right away.