How Does Automatic Savings Work?
Saving money is not easy, and according to a recent report, Over half of Americans have less than three months’ worth of emergency savings. Trying to save money for emergencies, a vacation, or a new car purchase is even more difficult when you’re accustomed to spending your money a certain way or living paycheck to paycheck.
Experts recommend that you pay yourself first, meaning putting away a certain amount of money each payday before spending any money on nonessentials, but that’s often easier said than done. For example, if you want to start a nest egg for a rainy day or need to save money for a down payment on a new car, an automatic investment or savings plan is the perfect vehicle to help you reach your financial goals.
What is Automatic Saving
From online banks and financial institutions like SoFI Invest (SoFi Bank) to large brick-and-mortar banks, automatic savings are the best and latest way to save money consistently. An automatic saving plan is a personal savings system that automatically adds money to a savings account through direct deposit from your employer or your bank or other financial institution.
Using separate accounts at your regular bank or a different financial institution is a great way to make the most out of an automatic plan. According to the experts and SoFi, “Separate savings for separate goals can be a solid strategy, especially if you have several needs.”
Direct Deposit and Bank Account Automatic Saving
If you set up an automatic saving or investment plan with direct deposit, each time you get paid, a portion of your paycheck automatically goes into a savings account or investment account of your choice offered by your financial institution. To use a direct deposit automatic savings plan, you first must open a savings account and provide your employer with the account information and the amount of money you want to be added to the account each payday.
Another way to take advantage of saving automatically is through your bank, where you receive your direct deposit paycheck. For example, your bank will transfer the predetermined amount into your savings account instead of your employer directly depositing the money into your savings account. With the bank handling the automatic deposit, there’s no need to provide your employer with your savings account routing and account numbers. Remember that you must have a savings account for any automatic saving plan to work.
Benefits of Saving and Investing Automatically
Some banks offer a feature called “roundups.” Roundups work by rounding up any money you spend using your bank’s debit card to the nearest whole dollar and depositing the extra money into a savings or investment account. Roundups are a great way to save small amounts of money, adding up to a significant amount.
Another benefit of an automatic saving or investment plan is that you pay yourself first, making it easier to grow accustomed to deducting the money from your paycheck or bank account automatically.
If you find it challenging to save money consistently and regularly, saving money through an automatic plan is your best solution. It would help if you started small with amounts you can afford and gradually increase according to your financial situation and goals.
