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Why Automatic Savings Plans Work

March 21st 2017 by
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According to a Gallup poll, nearly two thirds of Americans prefer saving to spending. The gap between spenders and savers has been getting wider since the 2008 economic collapse, and now it’s at an all-time high.

But Americans aren’t good at saving. US News reported that 70% have less than $1,000 saved. So what’s the trick to get into that 30%? Making savings an automatic process rather than a manual one.

You can ask your employer to divide up where your paycheck goes. The majority would go to the checking account you use to pay bills, but a percentage can go to your savings account. This works for three main reasons:

No Effort After Set-Up

Once you have the direct deposit in place, you won’t have to do anything else. No willpower needed. No reminders.

Make Spending Less a Habit

If a small percentage is going directly to savings, you won’t ever see it in your checking account. This means it won’t “feel” like you have that money, and you’ll be able to adjust your spending habits accordingly.

This might mean you need to reduce your coffee trips, pack more lunches, or cut back on dining out, but the key is finding a healthy balance.

Separate Accounts

By having a separate savings account, you’re setting yourself up for more success. You can access that money when you need it, but it’s not as available as the cash in your checking account. You have to think about, and this will cause you to seriously consider if you need to make the purchase you’re about to make.

Most savings accounts also come with limitations to the number of transactions per month.

Don’t Give Up

Getting on a savings plan is an adjustment. If you find you’re still dipping in your savings a few times per month, make a goal to start doing that less (Maximum of three times, then two times, then one, etc.).

 


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