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Saving isn't always easy, but it pays off over time, providing a foundation to protect against unexpected financial challenges. It works best when you have a strategy to consistently save money and grow it over time.
One of the best ways to do this is by automating your savings — that is, telling your bank to send regular deposits from your checking account to your savings. If you haven't yet, here are four reasons to consider automating your savings:
Setting financial goals is important to maintain momentum and purpose on your savings journey. Whether you're saving for a dream vacation, a down payment on a house, an emergency fund, or your retirement, having a specific purpose for your savings can help you stay on track and maximize your goals.
Automated savings help eliminate the need for manual transfers, making it easier to contribute consistently to goals.
Typically, a good plan is to set up an individual savings account for each savings goal (like an account for travel, emergency fund, or down payment) and then automate deposits to each account on payday. That ensures you're able to easily track where you are with each of your savings goals and makes it clear whether you should increase the amounts to each account based on your progress.
The hardest part about saving money is overcoming the temptation to dip into savings for non-essential purchases. Automating your savings can help keep you on track. By setting up automated transfers to your savings account, you create a barrier between your discretionary income and the money you have saved.
When money is automatically transferred to your savings, it becomes a matter of out of sight, out of mind. You will now base your budget and spending based on the money that's left after the transfer happens. This makes you far less likely to dip into your would-be savings for a clothing sale or brunch, ensuring that your money stays where it belongs — in the bank and growing.
Saving money isn't just about setting aside funds just to do it; it's also about making your money work for you and grow over time. A significant advantage of putting your savings on autopilot is the potential for consistent growth through compound interest. This compounding effect increases the growth of your savings greatly, but it requires time — and the right bank account.
High-yield savings accounts offer APYs higher than most checking accounts, and many of these accounts come without deposit requirements or unnecessary fees. By taking advantage of the higher interest rates these accounts are offering and setting up automated, regular deposits, you can grow your money much faster than you would with just a regular savings account, which has an average interest rate of 0.42%.
Successful saving doesn't happen overnight. It takes time and consistency. But building the habit of saving can be the best thing you can do for your financial journey, and automating it makes the habit much easier. Once you make saving a habit, you have created the foundation for a successful financial picture.
This article was originally published in August 2023.
