What could a boosted savings account balance do for you? A lot, actually.
For one thing, it could protect you in the face of unplanned bills or a job loss. In fact, as a general rule, it's a good idea to have enough money in the bank to cover three to six months' worth of essential living expenses. That sum could get you through a layoff, or it could come in handy if your car breaks down, your heating system suddenly needs a major fix, or an injury lands you in the hospital with a very expensive ER bill.
In a recent Bank of America survey, 40% of respondents say saving more money is a major goal for the new year. And 28% are already making one smart move that should lead them closer to that goal -- automating their savings.
Put your savings on autopilot
There are several reasons why you may have struggled with saving money in the past, but let's be real – the temptation to spend on non-essentials is probably a big one. If you've repeatedly fallen short on savings because you've been tempted by concert tickets, takeout meals, or outings with friends you didn't want to say no to, you're not alone.
Not only can social pressure cause you to spend more than anticipated, but it's easy to fall victim to impulse buys just about anywhere, whether you're shopping online or picking up a few grocery items at the supermarket. That's why using automatic savings tools is a great way to stay on track.
When you automate your savings, you arrange for a portion of each paycheck to go from your checking account to a savings account. That savings account could be a traditional bank account that pays you a small amount of interest, or it could be a retirement savings account like a 401(k) or IRA.
If you don't have a fully loaded emergency fund (with enough money to cover three to six months of bills), then building near-term savings should be your first goal. If you've hit that mark, you can then focus on retirement savings. But either way, automating your savings will make it harder to overspend because some of your money will disappear before you even get a chance to touch it.
Let's say you want to add $300 a month to your savings account in 2022. If you take the approach that you'll try to spend judiciously during the month and transfer that $300 at the end of the month, you may not meet your goal. But if you send that $300 a month to your savings at the start of the month and then work with the remaining money your paycheck gives you, you'll effectively force yourself to meet your savings target.
Setting up an automatic transfer
Most banks let you easily set up a transfer from checking to savings. But if you'd rather focus on building a retirement nest egg, you'll need to find an IRA with an automatic transfer feature. Not every IRA does, but many do, so you'll need to do a little research.
Meanwhile, if you have access to a 401(k) plan through your job, the only way to contribute is through automatic savings. You'll tell your payroll department how much money you want deducted for your retirement plan, and they'll take care of the rest. That money will then disappear from your paychecks off the bat so there's no temptation to spend it.
Growing your savings takes a lot of discipline. If you've struggled with saving money before, it pays to put the process on autopilot. Even if you haven't had a hard time saving in the past, automating the process could still work to your benefit and help you achieve the goals you set for yourself.
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