How An Automatic Savings Plan Can Help You Achieve Your Financial Goals An Automatic Savings Plan Can Turn Goals Into Reality
We get it – saving isn’t the most exciting way to manage your money, especially when you’re just getting started. But that doesn’t change the reality that saving is a crucial part of reaching your personal finance goals. All it takes is a plan.
In this post, we’re going to outline just how powerful an automatic savings plan can be for your financial goals.
How an automatic savings plan works
An automatic savings plan is typically carried out one of two ways: either the saver's employer deducts a certain amount from each paycheck that's then deposited into a savings account, or the saver’s financial institution transfers a set amount from their checking account into a savings account on a routine basis.
One benefit of having the amount transferred out of your paycheck to your savings account is that you tend not to “see” the money leaving your checking account. For many people, their checking account is viewed as the money they can spend, which makes it harder to move funds out to a savings account. If you can relate to this, consider having the funds taken out of your paycheck to stay on track with your savings plan.
The frequency of your automatic savings
One part of creating an automatic savings plan that isn’t often discussed is the frequency of savings. The frequency of contributing to your savings is generally oriented around two aspects:
Pay cycles – If you are paid on a weekly basis, then it can often be easier to simply set your savings goal to be defined on a weekly basis as well. If you are paid bi-monthly, then it might be easier to define your goal on a monthly basis.
The amount you define for the transfer – If you find that the nominal savings method works best for you, then you might choose to use the weekly frequency as the amount of money could be smaller. For example, if your goal is to save $100 a month, then you only need to set aside $25 a week to maintain the pace of savings to hit your monthly goal. But if you’re comfortable moving $100 into your savings account all at once on a monthly basis, that works, too. Always define your savings goals by a frequency that makes you most comfortable.
Why automatic savings plans work
There are countless incentives for enrolling in an automatic savings plan. Four common reasons include:
Simple saving – While many people won't stick with a financial plan that's too complex or difficult to achieve, automatic savings plans are easy and require little effort to maintain. The key to sustaining a savings goal is to make it as uncomplicated as possible.
Easy growth – Once savers become accustomed to saving automatically, they often don't notice the small sum leaving their paychecks or checking accounts. In time, automatic savers reap the rewards for their consistency.
Time management – As the old saying goes, “time is money,” and an automatic savings plan conserves both. Much like auto-paying utility bills, for example, automatic savings plans remove the work from transferring money each pay period.
Proven results – People have been enjoying the success of automatic savings since the 1970s when these plans were first introduced.