Savings/Credit information-Savings and Credit

How to Create an Automatic Savings Plan

More on this topic

Setting up an automatic savings plan is one of the best things you can do to secure your financial future. When many people try to save on their own, they pay bills first, and then see if anything is left for savings. Often, little is left and saving is forgotten.

Pay Yourself First

With an automatic savings plan, the money for savings is taken from your paycheck or your account before you pay other expenses. It’s fast, and more importantly, a regular and sustainable way to build your savings.

What Is an Automatic Savings Plan and How Do I Set One Up?

To begin an automatic savings plan, you will usually authorize your employer to electronically direct deposit a pre-determined amount from your paycheck into the account(s) of your choice. An automatic savings plan can be directed to a savings account, but can also be deposited into any number of accounts, such as an IRA, a 401(k) plan, or a money market account. Automatic savings does not have to be set up with a regular paycheck. You can set up automatic payments to transfer between your accounts. For example, you might set up an automatic savings plan that regularly transfers money from your checking account to a high-yield savings account. You just need to make sure that the money is in your checking account on the date that the automatic savings payment is deducted. Automatic savings plans are often successful because you are less likely to miss the money if it is taken immediately out of your paycheck. Saving becomes a habit, enforced by the discipline of a regular, automatic payment.

Do Automatic Savings Plans Work for the Self-Employed and Others without a Regular Paycheck?

Automatic savings plans can work for self-employed people, too, even though self-employed professionals may not have regular paychecks. If you work for yourself and/or don’t have steady income each week, be mindful of your cash flow when you set up an automatic savings plan.

Change Your Mindset from “Saving Is Difficult” to “Saving Is Easy”

Setting up an automatic savings plan is easy, however, it may be more difficult to change your frame of mind about the process of saving. If you have habitually paid all of your other expenses before you pay yourself, saving feels difficult. It may seem as though there is never enough money. Instead of reacting to the fact that there is less money left after you have paid bills, consider putting a spending plan (or budget) into place first. Creating a budget – and sticking to it – will allow you to contribute more cash to your automatic savings plan. See the Web site mymoney.gov for some good information on budgeting.

To Succeed at Saving, Set a Goal

Setting goals should help to achieve results. If you set up an automatic savings plan with a goal in mind, you are more likely to succeed in saving money regularly. Your goal might be to save $100 per month until you have $10,000 in your savings account. Or it could be to save $25 every two weeks to create an emergency fund with six months of living expenses. Make the goals as specific as possible so you can measure the results of your efforts.

Keep Your Savings Account Separate from Your Checking Account

Automatic savings facilitates this separation. Consider using your checking account for spending and bill paying. Automatically deposit into a savings account, and try to forget about that account until you really need it.

To Grow Your Automatic Savings Account, Put Any Extra Money into that Account

You may occasionally receive money in addition to your regular income—tax refunds, rebates, monetary gifts. Consider depositing that money into your automatic savings account. If you can do this for each instance of extra money, you may never miss that cash.

Additional Resources