Saving money is currently seen as a “Dying art” that only a few select circle of people can use to their advantage. In reality, this couldn’t be any further from the truth. Less than 40% of people in US have more than 1000 in saving. If we take a few critical steps to make it automatic, saving money can be the easiest task to accomplish in our complicated lives.
Making your money grow automatically sounds like one of those get rich quick advertisements, but this technique is not about becoming a millionaire overnight. A savings account should be a financial nest egg that can be used as leverage for your personal needs, whether that be for emergency situations or financial growth.
Follow these elementary steps, and I promise you will achieve at least one thing, obtain rainy day money.
Is there anyone who can argue this is not worth their time? I sure don’t think there is.
Open A Savings Account with a Separate Bank
This is probably the most challenging step (effort wise) in the process. Opening a new account will require you to do some research online for a bank, fill in the information for opening a new account, and deposit the minimum amount (if there is one), and you are done.
Wait…that wasn’t hard at all, was it?
Seriously. That is it.
Opening a new account with a bank isn’t that hard anymore. Honestly, I opened my first bank account in 2006 when I was 16, and I don’t think I can say it has ever been truly difficult in my lifetime.
In fact, since then it has gotten easier as you now can fully open a new account online without ever stepping foot in a brick and mortar store. The scariest thing about this step is that some banks still require you to deposit a minimum amount.
Although, once you consider that you can easily find banks with a required amount of $25 or less, this is a step you should not be afraid to take if your goal is saving money.
Features to Consider in Your Search For a Bank
The most important thing about your separate savings account will be access or lack thereof in this case. You should not have a debit or credit card for this account. In your search for a savings account, you should ignore whether or not they will give you a card.
If they ask you if you want one in the setup process, say no. Not having quick access will be very important as it makes your money in that account slightly less accessible, but with today’s technology, it will never be too hard to access in case of an emergency.
Fees should be next on your list. Why don’t I put charges first? The answer lies in the automatic steps your will take later in the guide. The most critical thing to look for with fees is the minimum balance requirements, any activity limits, and any yearly cost.
You will want a bank that has a low minimum (around $50 or less) and relaxed restrictions on activity such as having to make at least one monthly deposit. Again, your automatic set up will easily cover these requirements.
Finally, you make sure you look at interest rates. When you start doing the math, it might seem like a 1% interest rate isn’t much unless you have six figures in your account. The opposite is correct, as the goal is to save as much money as possible and every penny counts. It is as simple as that.
Setting Up Automatic Savings
Setting up your automatic savings is the most exciting part for me, as it is a significant step to achieving financial responsibility.
If your job offers direct deposit, take advantage of it and enroll as soon as possible. What most people don’t know about direct deposit is that with most employers you are not limited to deposit into only one account.
There are various rules allowed by different companies, so be sure to do a quick check into how your business operates. Some will let you do a 50/50 split by sending half of your money to one account and the other half to another.
What you will want to do is choose a comfortable amount that you wish to deposit to your separate savings account. I think this is the hardest action (emotionally) to take. It is at this moment when people tell me they are living paycheck to paycheck and can’t afford to spare a dime for their savings.
Listen to me…I understand. I’ve been there, and I know what it’s like looking at your checking account balance and seeing $2.35. I know what it is like to overdraft and have that fee take the air out of my lungs. It is difficult.
Considering the fact that 69% of Americans have less than $1000 in their savings account, it is easy to let you know that you are not alone.
If I tell you to set up your paycheck to send $25 (in most cases you can also choose a percentage which I prefer, start around 5%) to your separate savings account, I know some will say they can’t afford to.
I can’t stress this enough, it doesn’t matter who you are or what your financial status is…YOU WILL NOT MISS THIS MONEY. The reason you won’t miss this money is that you will never see it.
You have your regular bank which will receive the central portion of your paycheck as you set it up. Pay all your bills and bring home the groceries, the leftover money (if you have any) will be your spending money.
Anybody living paycheck to paycheck will spend that extra cash. At that point, you will be waiting for your next check just as you would have done before you set up your automatic payments.
Meanwhile, a year goes by, and you haven’t made any other changes to your lifestyle. You finally get the urge to check on your separate account, and you will find that $25 has turned into $600.
If you keep that pace for another year, you will find yourself in the top 31% of American wealth regarding savings accounts. What did you do to get there? You opened a bank account and set your paycheck to send $25 to another bank two years ago. In that two year span, you did nothing else.
Your savings account grew from $25 to $600 automatically.
Taking Automatic Savings to the Next Level
Now that you have your savings on an automatic plan, you could comfortably sit back and just let your money build up to meet your financial goals. Although, I do have a few tips to help your savings grow into something even better than just a rainy day fund.
Updating you deposits will still be an automatic process, but setting up some time either yearly or every other year to assess how your plan is working will yield excellent results.
After several months have gone by, it will start to sink in you don’t miss that extra money you are saving. The next thought should be “could I afford to save an extra $x or x%, ” and it might lead to another realization that you actually can.
Similar to compound interest, every bit you raise your deposit amount will add to the total amount over time.
Adjusting to the fact that you don’t miss the money you are saving may only lead to the fact that you possibly can up your automatic saving amount. There does exist a situation where you are guaranteed to be able to increase your savings amount.
That is anytime you get a raise or move to a higher paying job. Update your deposit amount as soon as you start earning extra pay. Think about it. If you didn’t miss any of this money before, and your paycheck rises by $100, then that is another $100 that you never had to spend in the first place.
Take an amount from that raise and put it towards your automatic savings, say $50 for this example.
You are now saving $75 from each paycheck. With two paychecks a month, that boost your yearly total up to $1800. In a few years, you could use that for any number of options. Your child’s first car? An overseas vacation? Down payment for a house?
Let your imagination run wild on that one, but my advice is to use it use it as a springboard for a smart investment. Whatever you do, make sure you do it automatically.
About the author: I am John McCartney and I am 29 years old. In my life, I can only think of a few things that I have been consistently been told I do well. One of those things is writing, so I have decided to go into freelance writing. I hope to make this a successful career.
Veronica Merrell says
Awesome article! I want people to know just how easy it is to start saving. A little hack, well described here, can go a long way in your life