3 Steps to Automate Your Savings

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Is there any task you know you should be working on, but haven’t taken action yet? Like saving for the future, perhaps?

It’s hard to blame you for not jumping on this financial responsibility. You know it’s important, but you have a million things on your mind, fires to put out, people to see....

Plus, you’ve proven that what you’re currently doing with your finances (or not doing) won’t kill you. There’s no immediate reason to change anything. Right?

Maybe. Unless you’d like to reduce your anxiety over money and enjoy some peace of mind.

Take Action (the Easy Way) and Automate Your Savings

When it comes to financial goals, most people don’t plan. Therefore, they don’t take action. This leaves them feeling insecure about the future.

But there’s a solution to this uncomfortable feeling. It’s simple: automate your savings in three steps.

Step 1: Lay Out Your Goals

The first thing you need to do is create a list of the things you want in your life that will cost money. What do you want to achieve or acquire?

Start by creating a list of things you want to achieve or acquire. We’re not talking big retirement goals here; that’s outside of the scope of this article. I’m referring to those things that you want to spend money on in the next 1, 5 and 10 years.

Some of these goals may be fun, like traveling to another country or buying a new pair of skis. Others may involve purchasing real estate (like a house or a condo) or buying a boat. Still others may be saving for a child’s education or buying a business.

Whatever the goal is, the way to make it real is to write it down.

Step 2: Make Your Goals Specific

Just listing general goals in the first step won’t get you very far. The next step is to add detail: you have to put a date and a cost next to each one.

Start to think about when you want to reach the goal. Do you want to purchase a car in 1 year? Buy a condo in 5 years?

Go ahead and attach a specific date to each goal. You want to be as accurate as possible here, because the total will affect the amount you save each year.

Next, estimate the cost of each goal. Let’s say you want to purchase a condo in 5 years for $200,000 and you want to put down 20%. That means in 5 years you'll need $40,000 in savings.

From there, we can break it down even further to get a monthly savings amount. $40,000 divided by 60 months (5 years x 12 months in a year) gives you a monthly savings goal of $667 per month.

If your monthly savings goal ends up being unrealistic, adjust the numbers by extending your date by another year or reducing the cost of what you want, like that condo.

Step 3: Set Up Savings Accounts

Once you have established a specific date and total cost for each goal and backed into a monthly savings amount, you're ready to add the finishing touches to automate your plan.

This step will require you to choose a savings account to hold your money. Many online accounts work well for this, including accounts with Ally Bank and Capital One 360. The bank you choose isn't as important as just setting up a specific account just for your savings goals.

Believe it or not, this is the most crucial step to savings success. Most people can work through steps 1 and 2. But they fail to follow through with step 3, and never make their savings consistent. Other priorities and distractions get in the way, and the money is never saved... and that big goal is never reached.

Rather than make your savings a last resort, create an automatic transfer from your current checking account to your new savings account. Simply total up your monthly savings amounts for each goal (from step 2) and establish an auto-transfer. Then you’re done.

You have created an automatic way to ensure that you will reach your goals by the date you choose. No more beating yourself up at the end of the month because you’ve once again blown through your income with nothing to show for it.

You won’t be stressing yourself out trying to do haphazard calculations in your head either. (Don’t pretend you don’t know what I’m talking about. I’m sure you’ve caught yourself staring at the ceiling, moving your lips and counting on your fingers trying to figure out how much money you’ll have left at the end of the month to put toward that new car.)

And guess what? You may even be able to indulge in some guilt-free spending with the money left over in your checking account each month! Automate and (mostly) forget about it -- checking in on your savings from time to time is a good idea to guarantee you're on track.

Automation prevents you from forgetting to contribute to savings, and you won’t be tempted to spend instead. This will leave time to focus on the other important things in your hectic life… like what big financial goals you’ll meet next!

 

About the AuthorEric Roberge is a Certified Financial Planner™ (CFP®) and founder of Beyond Your Hammock. He works face to face and virtually with professionals in their 20s and 30s, helping them use money as a tool to live a life they love.

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