#WealthforLife Wednesdays: 4 Steps To Put Your Savings On Autopilot
Over the years, I’ve observed a few things about people who are good savers. It’s not because they are the most frugal, have a budget that accounts for every single penny or make high salaries. Their strategy is simple: Make it automatic.
Putting your savings on autopilot simply means that you have set up a recurring amount to be deducted from your paycheck or checking account every pay period or per month. When I first started automating my finances I set up what Jacquette Timmons, founder of Sterling Investment Management, refers to as a “no-matter-what savings strategy.” I committed to saving a fixed-amount regardless of how my financial life changed. The biweekly savings started as low as $50 per month until I was able to work my way up to saving 15%.Â Odds are, you wonâ€™t even miss the money.
“You must create a savings strategy so that you can back your actions into a goal,” says Timmons. “If you don’t have a strategy you are less likely to save and you diminish the probability of meeting your goals in the time frame you outlined. You’ll say, ‘I’ll do it next timeâ€™ and then a year from now, you’ll realize you haven’t met your savings goal.”
How many of you can relate to financial procrastination? No need to be bashful here; we’re in this together and we’ll take it one week at a time until you too can say, “I follow Wealth for Life Principle No. 4; I save at least 10 percent of my income.”
If you did the budgeting exercise with us last week you should have identified how much money you can save per pay period or per month. But saving on paper is the easy part. Timmons offers these steps to help you put your savings strategy into play:
Determine how much you can save per pay period or per month. Ask yourself, “Is my goal to save from every pay period or once a month?” “How does that fit into my cash flow?”Â The ideal target is 10% but you should come up with a “no matter what amount.” Maybe you can only save 2% now or $50 a month. Whatever the amount, be committed to saving that no matter what.
Of that amount that you plan to save, Timmons says you should first focus on creating an emergency fund. This should cover six to eight months of living expenses. After meeting that goal, she recommends that your savings be divided into different buckets. For example, you can have a savings account designated for short-term expenditures and another account for long-terms goals (3 year or less).
“Goals more than seven years should not be kept in a money market account,” Timmons advises. Instead, she suggests that monies for longer savings goals be invested in a stock mutual fund.
Now that you have determined how much you can save make sure that you are getting the most competitive interest rate. You want to save your money in a high-yielding FDIC insured savings account. I know what you’re thinking. These days, high-yielding sounds like a bit of an exaggeration when even the most competitive online banks barely yield 1 percent, but most online banks such as Ally and Capital One 360 along with credit unions are still yielding about .84 compared to the 0.01% traditional banks offer. Check out www.bankrate.com periodically to make sure you’re getting the best rate.
You’re almost there! Virtually any bank offers an automatic savings plan.Â Go to your banks website.Â Choose the amount you want to save and how often you’d like it deposited and the start date.Â Voila, you’re done. Now watch your money grow.
Happy Savings!Â Check back next week for more tips you need to build wealth and apps to help you track your spending.
Need a boost?Â Enter our Financial Fitness Contest for a chance to win $2,000 and a one-hour session with a certified financial planner.