Putting aside money in a savings account and investments regularly should be a part of every persons financial planning. Whether you have a specific goal in mind or not, saving money for future emergencies is always a smart move. For some, saving is practically second nature. For others, it may be difficult to know where or how to start. Saving money does not have to be difficult. At least not if you take the easy route and set up an automated savings plan.
An automated savings plan takes the guesswork, and the hassle out of saving. In fact, it is one of the easiest ways to save. Think of it like automated bill pay. Chances are at least some of your bills are automatically paid for through your checking account each month. Automated savings works much the same way. Each month a predetermined amount will be removed from your checking and placed in your savings account or investment portfolio. It is as simple as that. Since you never see the money, it makes it much easier to part with, and it is unlikely to be missed.
Automated savings plans are also a great option for those who work sales and earn commission. Often the inconsistent pay can make it difficult to build up a savings. In this case, determine the minimum amount you know you can afford each month. You can always increase the amount later. No matter how small it may seem, it will eventually add up to something much bigger.
Before getting started with automated savings, it may help to determine your financial goals. Having a goal will help keep you motivated. One suggestion would be to set aside an emergency fund. I recommend that you have at least 3-6 months of your expenses set aside in case an emergency or an injury occurs that could keep you from working. Once you determine the total amount you wish to save, you can then break it down into smaller amounts to be transferred to your savings each month. Much of this will depend on how soon you want to reach your goal, and what your monthly budget will allow.
If you already have an emergency fund set up, you should still consider setting up an automated savings plan. Maybe you would like to take a vacation, buy a new car, or save for a child’s college education or even retirement. In truth, you do not necessarily have to have a specific goal in mind when you start. Learning good saving habits can be a goal in itself, and one that every person should learn.
Even if you have already developed good savings habits, an automated plan can still benefit you. Not only is it much more convenient than making the deposits on your own, but it can also help you build your savings quicker. When money is set to automatically transfer, you do not have to worry about forgetting to make the deposit. It also eliminates any excuses that might come up to skip a payment.
Learning good saving habits early can help protect your financial future. An automated savings plan will make the process much easier.
Byron W. Ellis, CFP®, CLU®, ChFC®, CRPC