Why and How to Set Up an Automatic Savings Plan
With an automated system, you are more likely to increase your savings.
Saving money doesn't come easily for everybody, even when they have the income to make it happen. It's easy to forget to put money aside as you get caught up in day-to-day bill paying and purchase activity. One way to make sure your savings are growing is to set up an automatic savings plan.
What is an automatic savings plan?
An automatic savings plan is simply a system designed to place the same amount of money into your savings account on a regular basis, whether it's once a week, once every two weeks, once a month, etc.
Why should you use an automatic savings plan?
"Setting up an automatic savings plan takes the guesswork out of saving each month," says Jeremy Vohwinkle at The Balance.1 "With an automatic savings plan, you handle the initial setup and it's hands-off the rest of the way. If you're ready to amplify your savings efforts, learn how to establish an automated plan for saving and why it's a useful tool for managing your money."
Ultimately, an automatic savings plan helps you keep from forgetting to save, which means you can accumulate savings more quickly and save more over time. You can even use such a plan to pay off your debt, if you use it to save money in an account that you use just for this reason. This can help you keep your credit card debt down, for example, which can help your credit score.
How to set up an automatic savings plan
To set up an automatic savings plan, you should first set up a budget to determine how much you can realistically save each period. If you don’t already have a budget, now is a good time to start. Look over your bank statements to figure out how much you can save each period after calculating income and expenses. Then, figure out what your savings goal is and calculate how long it will take you to save that much. Then, if you feel the length of time is too long, you can look at cutting out or reducing some expenses in order to save more.
If you have a checking account where you deposit your paychecks, you can set up automatic deposits from it into a savings account on a regular basis. Another way is to have your income directly deposited into your savings account and then to set up automatic deposits from your savings account into your checking account to cover expenses.
"Set up automatic withdrawals to pull the amount you need each week from your savings into your checking account," suggests Amy Livingston at MoneyCrashers.2 "Make sure to set up these transfers to go through a few days after your paycheck comes in. For instance, if you get paid on Friday, set up the transfer for the following Monday or Tuesday. That way, you can be sure the money will be there in your savings by the time you withdraw it, and you won’t risk a hefty bank fee for overdrawing your account."
Of course, this method will require you to accurately calculate just how much money you'll need to live on, so it requires a little more supervision than the first method.
If your employer pays you by direct deposit, consider talking to them to see if they can deposit a specified amount of your check into your savings account while the rest goes into checking (or vice versa).
A new tool may help
Nevada State Bank recently joined other financial institutions and the Nevada Bankers Association in launching a statewide initiative aimed at helping Nevadans develop good savings habits. SaverLife Nevada is a financial wellness program offered by EARN, a national nonprofit whose mission is to help working families achieve prosperity through savings. SaverLife Nevada helps members set goals and track their progress. It even provides small cash incentives to encourage families to develop a savings habit and establish a financial cushion. Click here to find out more about the program.
No plan is perfect. The reality is that you might have to make adjustments to your automatic savings plan to account for unforeseen circumstances that arise. Life happens. There may be times when you need to reduce the amount you're saving. There might be times when you can save more, so you can increase your automatic deposits. Either way, if you have an automated system in place, you are more likely to increase your savings than if you rely on saving money only as it occurs to you.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of Zions Bancorporation, N.A. Member FDIC