By Taylor Schulte | Financial News
You may be asking this question if you can’t manage to save any money or save as much as you’d like to. You may think that saving money means you need to make a budget and stick to that budget by meticulously tracking every purchase you make.
That’s complete nonsense. I’ve got a super easy way to get you to save money: automation.
Set up a process to automatically pull money out of your checking account and put that money into a savings or investment account regularly. With just a one-time setup, you’ve committed your future self to consistently save money.
Thanks to automation, you can make yourself save money and you don’t even have to think about it! You just set it and forget it.
You’re probably already doing it
Are you contributing to your 401(k)? If so, then you’re already taking advantage of automated savings.
By contributing to your 401(k), 403(b), or 457, or even your deferred compensation plan, money comes out of your paycheck and gets invested before you have a chance to spend that money. Automatic paycheck deductions for your company’s retirement plan makes saving money very easy.
What if I can’t afford to save anything?
Consumer expert Clark Howard suggests starting small. Commit to just 1 percent — that’s only one penny of every dollar earned. One percent is such a small amount of money that you won’t even notice that you’re not spending it. In another six months, bump up your savings rate by another one percent. Keep doing this, increasing your savings rate one percent at a time.
What if I need cash for a down payment on a home?
Your workplace 401(k) isn’t the only option for automating your savings. You can automate your savings with a savings account or investment account to help you save for things like buying a home.
Just set up automatic, regular movements of money from your checking account to go into your desired account. You can even time these money movements to occur with payday. This way, the moment your paycheck gets put into your checking account, some of that money automatically goes toward meeting your designated goal.
What’s the easiest way to pay down debt?
If you want to aggressively chip away at debt, you can use the same system. Go over and above making the minimum payments on your student debt, your car loan or your mortgage by automating extra payments.
You can even use the “start small” strategy: Commit to paying just an extra 1 percent of your income toward your debt payments. Time these automated payments to occur with your payday. Increase this extra payment by another 1 percent every six months. Keep doing this until you’ve wiped that debt from your life.
Automation works for me
A year ago, I set up $100 to move from my checking account to an investment account every month. And then I forgot about it entirely. Writing this post just now, I remembered I had this account. So, I took a look and my balance was $1,297.58!
That’s what saving $100 every month got me over the course of 12 months. I even earned a bit of an investment return.
In short, saving money does not mean you have to create a budget, or be extremely mindful of your spending. To save money, take the easy way out: automate it!
—Taylor Schulte, CFP, is the CEO of Define Financial and the founder of StayWealthySanDiego.com and is passionate about helping people make smart decisions with their money. He can be reached at 619-577-4002 or firstname.lastname@example.org.