Do You Need an Automatic Savings Plan?
Making a conscious effort to save more can be challenging when your expenses seem to raise each year. Luckily, the right savings tools can help if you're struggling to find ways to put money away for a down payment, a wedding, or to build a rainy day fund.
One solution that works well is an automatic savings plan. Automatic plans operate under personalized guidelines of your choosing. Once the plan is set, you'll gain the ability to transfer money directly from the checking account where your paycheck is deposited and into a separate fund marked for savings.
How Much Should You Save?
Do you want to step up your savings in preparation for a large expense like a wedding or a down payment on a house? Or are you saving for longer-term items such as retirement or your child's college fund? To achieve a savings goal for something like a new car, you might need to save a certain amount each week for six months to a year. The amount required to hit your goal and the number of months or years you are able to save will factor into your decision about how much to save on a biweekly or monthly basis.
Setting a Savings Goal
Before you set up an automatic savings plan, you'll need to set a realistic savings goal. Track your spending for several months to look for opportunities to spend less. For example, you could decide to cook rather than go out to restaurants and save the estimated difference in price. You may want to start with a smaller goal and boost the amount once you're comfortable with the adjustment to your budget.
The Mechanics of Savings Plans
Automatic savings plans are linked to bank accounts where your money is held until you need it. Funds are transferred based on the directions you give the bank. Make sure you understand any minimum balances, monthly transactions limits, and maintenance fees associated with the savings account options for linked accounts. As your balance increases, your savings account may also generate interest income. The interest will help further build your balance and provide a long-term incentive to save. If you like to manage your accounts online, ask about digital access to your account to monitor the balance.
Establishing good savings habits will not only allow you to achieve your current savings goal but will also help make saving a regular part of your future. Once you use a portion of your savings to buy a home or pay for your wedding, it's a good idea to keep up with your automatic savings plan. Consider adding to your emergency savings account funds to keep building that nest egg until you have something new to save for, like a car or other large expense. Check your balance on a periodic basis and reevaluate your saving goals to help you determine the next steps on your path to financial well-being.
If you're struggling to achieve your financial goals, automatic savings plans can help. It's difficult to keep yourself honest and remember to manually transfer money into your savings account each month. Instead, you can make it easier on yourself by using an automatic savings plan to "set it and forget it." That way you won't need to remember to put away money each month for large purchases and other investments in your future.