Like all things that are good for us, we know how important it is to save and invest for the future, but most Americans are not saving enough. Despite the importance of saving for a rainy day, the devil is in the details.
Finding the money to start a savings plan can be difficult, especially in the current era of high unemployment, rising gas prices, and increased costs of living. Studies show that once we do set money aside, we are likely to leave it there. But how to get started? Automate!
3 Ways to Automate Your Savings
When it comes to stashing money in a savings account, it may be helpful to look at how we all pay taxes. Most workers in this country have their taxes automatically withdrawn from their paychecks. As a result many of us never realize exactly how much we are paying the government. The money is gone before it ever reaches our hands or our bank accounts, and over time we have simply learned to make do with what’s left.
Savers can use this same principle to put aside money for emergencies, large purchases, and even retirement. By dedicating a portion of each and every paycheck to savings and investments, workers can learn to live on the remaining funds while building up significant savings.
1. Direct Deposit
One of the simplest ways to get started is through direct deposit. Ask your employer to have your paycheck deposited directly into your bank account, thus avoiding the hassles of long lines at the bank and the risk of lost or misdirected checks.
Many employers will allow workers to split their direct deposits between two or more financial institutions (banks or credit unions), making it easy for workers to dedicate a portion of their paychecks to a savings account or money market fund. Even during low-interest rate environments, it is possible to find some accounts with attractive rates, and dedicate a portion of each check to savings that can help that emergency fund get off to a good start.
2. Keep the Change | Round Up Programs
Another easy method to start putting money into a savings account is to sign up for a “keep the change” type of service at your bank. Many banks offer a service that will round up purchases and put the extra change into a savings account. You never know you are missing the money and one day you look at your savings account and there is lots of money in there! What a nice surprise.
3. Set Up a Dedicated Savings Account
Those same workers can help fund their emergency accounts even faster by dedicating any “extra” money they receive to their favorite savings account. From birthday gifts to bonuses and incentive payments, workers can build up their rainy day funds without impacting their lifestyle or that of their families.
The same is true with annual raises, and many workers will want to dedicate a portion of their annual raise to the savings portion of their direct deposit arrangement. Ramping up the percentage devoted to savings is a great way to grow a significant savings account with a minimum of hassle and hardship.
Living on less than we make is definitely a learned behavior, but it is one of the most important lessons we will ever learn. No matter what your current salary is, chances are you can set aside at least a few dollars from each paycheck. While that may not seem significant, those dollars can add up quickly, and a well-funded emergency fund is a great way to cushion the blow of an unexpected financial setback. For more information, check out these 7 Common Myths About Saving Money.