by Maurie Backman | April 10, 2020
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This is why it pays to put your savings on autopilot.
Saving money is by no means an easy thing to do. This explains why an estimated 39% of Americans have less than $400 on hand for emergencies. It also explains why millions of workers are behind in building their retirement savings.
If you're hoping to improve on the savings front, the solution could boil down to one simple move: automating the process. Here's why it makes sense to put your savings on autopilot.
In a study conducted by The Ascent, 42% of respondents admitted to throwing money away on impulse purchases. Automatic savings can prevent some of those needless buys by removing money from your checking account automatically so there's less available for you to blow on nonsense. For example, when you see that your checking account balance has an extra $300 remaining at the end of the month, it's easy to be tempted to spend it on something fun. But if that money has already been tucked away in a savings account, there's zero temptation.
Some people slack in the savings department not because they egregiously overspend, but because they simply forget to transfer money from a checking account to a savings account or retirement plan month after month. The great thing about automating your savings is that that responsibility will no longer be on you.
Maybe you're hoping to have a fully loaded emergency fund by the end of December. Or maybe your goal is to max out your IRA this year. No matter your personal objectives, automating your savings will increase your chances of success.
There are a number of things you can do to put your savings on autopilot. If you're without an emergency fund -- enough money in the bank to cover at least three months of essential living expenses -- then building an emergency fund should be your chief financial goal. If that's the case, you can set up an automatic transfer from your checking account to your savings account so that money from each paycheck you collect lands in the latter account.
Meanwhile, if you've got an adequate emergency fund in place and are ready to focus on retirement savings, you have a couple of options for automating the process. Your first is to sign up for your company's 401(k) plan. Once you do, you'll have that money deducted automatically through payroll. Your paychecks will be smaller, but your 401(k) balance will get padded month after month. If you don't have access to a 401(k), you can save for retirement in an IRA, which you can open through most banks or financial institutions. Many IRAs today offer an automatic savings feature, whereby money goes directly from your checking account to your retirement plan each month.
In a day and age when many of us spend lots of money to make our lives easier, why not make the process of saving money easier as well? By automating your savings, you'll do just that.
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