Today’s post is part of the “Family Financial Guidelines” series. Whether you’re going through a financial turnaround or are just wanting to stay on top of things, this series will give you the tools to get and keep your family’s finances on track.
The Importance of Saving
We hear all the time how important it is to set aside money for savings. This can be savings to build up your emergency fund, savings to cover regular maintenance costs of your car and house, savings for your next vacation, or a thousand other things. The basic idea is to set aside a little money from every paycheck so that over time it grows to a large enough balance to cover a future expense without having to go into debt.
The idea of setting aside money for savings is great, so why don’t more people actually do this?
One common reason is that people go into it with the plan of paying the bills and covering expenses and then saving whatever is left. That’s sound logic in theory. But in practice we all know what happens. You see the balance in your checking account or the stack of money in your wallet, and our tendency is to spend it. You see that you still have a bit of cash left, so you order a pizza. You see that you still have money in your account, so you make that purchase at Amazon. Then by the time the next paycheck rolls around, there isn’t anything left to move into savings.
Make Savings Automatic
The trick to overcoming this is to make savings automatic. Most banks and credit unions give you the option to automatically transfer funds from a checking account to a savings account according to a set schedule. All you need to do is contact your bank and set it up (or log in to your account online and set it up yourself). So, if you get paid every Friday, you can set it up to automatically transfer $25 (or whatever amount you choose) from your checking account to your savings account.
It’s almost like magic. A one-time visit to the bank (or your bank’s online banking page) that will take you a matter of minutes can turn around your savings habit.
The Bottom Line
Automating your savings takes the human error out of trying to save. There is no forgetting about it or putting it off until later. Instead it happens without notice; it’s one less thing on your to-do list. I know that personally, I do this with a number of things. I have an online savings account at ING Direct with multiple sub-accounts for my various savings goals. I get paid every other week and have amounts transferred automatically to my emergency fund, life insurance fund, car maintenance fund, and gift fund.
Would I really remember and take the time after each paycheck to make all these transfers manually? I’d like to say yes, but realistically I would probably skip them sometimes and spend the money instead. Making savings automatic is the key to keeping your savings goals on track.
6 comments
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Modest Money
June 6, 2012 at 3:24 pm (UTC -4) Link to this comment
I really like this strategy too. If the money is coming out every month or payday, you grow to not miss that money. It just becomes another bill that has to be paid. For some people it is just too tempting to spend any money left sitting in their account.
Justin
June 6, 2012 at 9:04 pm (UTC -4) Link to this comment
Exactly! It is really easy to see that you still have a $20 in your wallet and then buy something on impulse instead of setting it aside to save.
thethriftyspendthrift
June 6, 2012 at 5:42 pm (UTC -4) Link to this comment
We are lucky enough to be in a position where my husband’s paychecks are directly deposited into the checking account to pay the bills every month. I usually end up putting all of my paychecks for the month directly into our savings account.
Justin
June 6, 2012 at 9:10 pm (UTC -4) Link to this comment
It sounds like you’re in a very good position! When my wife worked (before we had our little boy), that’s what we did. My paychecks covered the bills and expenses and hers went to savings.
Katie
June 7, 2012 at 6:40 am (UTC -4) Link to this comment
My husband and I neither one have direct deposit at work, or I would definitely make my savings automatic. Every week after I deposit our checks I take enough cash for us to get through the week, which is the same amount every week. Then I pay whatever bills have come in that week and transfer the rest to savings. So for those who don’t have direct deposit I think it is a good idea to transfer that money the second you have paid your bills.
Justin
June 7, 2012 at 3:03 pm (UTC -4) Link to this comment
I guess I assumed every employer had direct deposit these days. I don’t think I’ve received a paper check in more than 10 years, going back to high school. But you make a great point to make the transfer to savings as soon as you deposit the check.