automatic savings

How an Automatic Savings Plan Can Lead to Financial Success

Did you know that forty-six percent of adults regret not saving enough? Putting enough savings aside is a must for retirement, emergencies, children education, among other important life events. Are you setting aside some money regularly?

If so, how much are you saving? Saving money isn’t easy for anyone. Yet, the key to successful saving habits is automating your savings.

Setting your own automatic savings plan can help you get out of debt and set aside a safety net for any emergency. Not sure if it’s the right call?

We’ll tell you why it’s the best way to reach your financial goals and how to automate your savings. Read on to learn more.

Automatic Savings: Is It the Key to Financial Freedom?

If you’re living paycheck to paycheck, automating your savings might seem unattainable. Your monthly expenses may put a dent on your income but, the right planning can help you put enough aside for a rainy day. To start automating your savings, it’s important to look at your monthly income and expenses.

How much can you put aside? Even if you don’t have much left after expenses, you can start small. And, increase the amount you transfer to savings once you lower your debt.

You may think automating your savings isn’t worth it. Yet, it’s one of the best savings strategies. The most important benefit of this saving strategy is having an emergency fund.

These savings could help you cover your expenses for an unexpected health emergency or even being laid off. Another major benefit is becoming debt free in less time. You could use your savings to make large payments to your credit cards or loan.

Also, you could consider negotiating with your creditors to pay off your loan or debt by making a lump sum payment. If you stick to your automated savings plan, you may end up saving more on your retirement and savings accounts. Remember that as your savings keep growing, you will earn more interest on those accounts.

Developing the right savings plan can help you reach your financial goals. You should tailor your plan to your situation. It’s important to set realistic savings goals.

Most plans set automatic transfers every 2 weeks. If you aren’t sure what’s the best approach, you should consider consulting a financial advisor. They can provide insight into which savings and retirement accounts you should consider to achieve your financial goals.

How Can You Automate Your Savings?

Automating your savings may seem challenging at first. Most of us choose to transfer or deposit money in our savings account ourselves. If we save using the traditional way, we risk forgetting about it or using the money for other purposes.

That’s why automating your savings is the best way to be ready for any unexpected emergency and retirement. Not sure how to do it?

Here are some great ways to automate your savings.

1. Set Your Monthly Savings Goal

The best way to save enough is by setting a monthly savings goal and stick to it. You should consider your monthly income and expenses to set a realistic savings goal.

Experts recommend you try to save 25 percent of the gross income you earn if you are in your 20s. While if you are in your 50s, you should have saved 5 times your annual salary.

After you set your monthly savings goal, it’s important to decide how you are going to distribute your savings. A good rule of thumb is setting aside 15 percent toward retirement accounts and 10 percent for emergencies.

It is up to you how you want to track this goal and remind yourself to stick to your plan. Your banking app and many popular finance apps have this built in, but you may choose to use an Excel spreadsheet or even a sticky note in your wallet.

2. Automatic Transfers into Savings Account

For most people, this method is the easiest way to automate their savings. Before programming your transfers, you should ask your bank about any possible fees. Many financial institutions set monthly limits for the number of transfers.

If you don’t own a savings account, you should do your research to find the best option for your automated savings plan. The right account will offer the best savings rates and least fees.

3. Pledge Your Tax Refund

Every year, taxpayers use their tax refund for purposes such as buying a car or taking a vacation. Yet, you could get so much out of it if you decided to save it.

Adding another thousand to your savings account can get you closer to achieving financial freedom. You should consider pledging your tax refund to open a new retirement account such as an IRA.

4. Increase Your Monthly Contribution to Your 401(K) Account

If you own a solo or employer-sponsored 401(k), you are making monthly contributions to your retirement plan. You should consider making larger contributions to grow your retirement account. If your retirement account is sponsored by your employer, your savings potential is even higher.

Employers offer matching contributions. Typical, employer contributions match dollar to dollar up to 3 percent of your salary.

They may match contributions over that at 50 cents per dollar up to a set threshold. It’s recommended to consult the Human Resources Department at your employer to learn more about how your 401(k) plan contributions work.

5. Monthly Savings to All Your Retirement Accounts

When it comes to retirement, you have many options to grow your savings. You shouldn’t limit your savings to only your 401(k).

Some of the retirement accounts you may consider opening are IRA, SEP IRA, HSA, Cash Balance Pension Plan, among other options. If you have monthly contributions set up already, you should consider increasing the amounts.

Will Automating Your Savings Help You Reach Your Financial Goals?

Yes, establishing your own automatic savings plan can help you reach your financial goals. It’s important to develop a plan according to your finances. At first, it may seem nearly impossible but, you should start small and work toward your saving goals.

You may think it isn’t the right time. But, having the right safety net for retirement and emergencies requires you start saving as soon as possible.

Don’t wait till it’s too late! Automate your savings today to achieve the financial freedom you have been dreaming about.

Want to learn more tips to save enough for a rainy day? Check out our Save Section for more insightful articles.