You’ve got plans — and plans can be expensive. Saving money for the things you want to do or buy doesn’t just happen. You have to make saving a constant priority, and the best way to do that is to have a process in place to save at regular intervals, whether that's monthly, weekly, or daily. So how do you get where you want to go? The easiest and most effective way to save is automatically.
Yes, we’re talking automatic savings.
When you automate your savings, you can essentially “set it and forget it” and consistently work towards your savings goals — whether that’s saving for an emergency fund, home purchase, education, or even just holiday shopping.
Related: 11 Tips for Saving Money in the Military
The hardest part, however, is getting started. This Veteran Saves Week, which occurs annually in November, make the pledge to set up at least one form of automatic savings. If you aren’t sure where to start, we have five tips that you can use to automate your savings:
1. Save Money from Every Paycheck
A classic saying in personal finance is “pay yourself first,” which means setting aside a portion of your monthly income into savings before you do anything else with the money. While this principle doesn’t require your saved “payment” to be automated, that is the best way to maintain consistency and avoid any temptation to spend it elsewhere.
Setting up a scheduled transfer with your bank is a great way to save money from each paycheck you receive. Simply choose a day of the month or a regular interval, such as every two weeks, to transfer a set amount from your checking account to your savings account.
Once you handle the initial setup, money will be deposited before you have time to worry about what you’re going to do with it, meaning you’re less likely to spend it on unnecessary purchases. In fact, once automatic savings deposits become a habit, you may find you don't miss the money at all.
2. Use Automatic Savings Tools
In the past few years, a variety of new apps and savings tools have come onto the market to offer people an easy, reliable way to save automatically. Some of these tools, known as round-up apps, let people save their spare change by “rounding up” the amounts from everyday purchases. For example, if you spend $4.28 at a coffee shop, the app will automatically transfer 72 cents into your savings account.
Over time, your spare change adds up and you may find yourself not even noticing the extra money set aside. The College Investor listed the top 5 automatic savings apps of 2024 as:
- Chime
- Wealthfront
- Acorns
- SaverLife
- Current
3. When You Cut Spending, Put It in Savings
Cutting spending is good. Making sure you actually put that money into savings is even better.
For example, if you decide to cancel an underused gym membership that typically costs $50 per month, set up an automatic $50 transfer on the same day each month from your checking to savings account. If you could find an extra $150 a month of unwanted expenses, after a year you’d have an extra $1,800 in your savings account. That’s a great start to your emergency fund or next great vacation!
4. Automatically Increase 401(k) Contributions
One way to boost your savings automatically is to use a contribution rate escalator. This is a savings tool that some 401(k) plans offer that lets you automatically raise the percentage of money that you are saving for retirement each year until you reach a target percentage.
This is perfect for newer employees or those who may not be saving enough money for retirement.
For example, if you are already saving 5% of your income in your 401(k), a contribution rate escalator would let you automatically increase that percentage by 1% of your income per year until you are saving up to 10% or 15% or whatever savings goal you wanted to set. You could find yourself saving twice (or three times) as much and may not even feel it along the way, especially since the 1% increase will likely be smaller than your annual raise or cost-of-living adjustment.
5. Tuck Money Away for the Holidays
The holiday season always finds a way to creep up on us, leaving many of us with no option other than to charge our payments for gifts and other items on high-interest credit cards. It’s a quick way to accumulate more debt. But, if you proactively take a small portion from your paycheck and tuck it away for the holidays, you can spread that expense throughout the year and avoid using your credit cards.
Related: 5 Ways to Tackle Holiday Credit Card Debt
Over time, these automatic deposits add up. For example, $50 a month accumulates to $600 a year, plus interest that has compounded. If you choose to participate in something like the 52-week challenge, you can save $1,378 in a year. All it takes is some effort and discipline.
Remember, even while you’re actively reducing debt, you have the ability to start to save, even if it's a small amount.
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AAFMAA is the longest-standing, non-profit financial solutions provider exclusively serving the military community with always-affordable life insurance coverage, expert wealth management and trust services, exclusive survivor assistance and customized residential mortgages. With AAFMAA by your side, you are empowered to make your own smart decisions toward achieving your financial goals.
Contact us today to learn more.
This article was originally published March 31, 2022.