February 24, 2020
Automating your savings pays off in a surprising number of ways.
First, it gives you peace of mind. You don’t have to keep thinking about how much you should save, when to make a deposit or transfer and whether you’ll meet your savings goals – just “set it and forget it”! Second, the federal government incentivizes automated savings by offering significant tax deductions which could put thousands of dollars back in your pocket. Third, turning to savings rather than borrowing when you have an expense is a great way to stay out of debt and save extra money on interest.
Here are 5 ways you can automate your savings:
Schedule a recurring transfer from your checking account to a linked savings account. You may find that it works best to synchronize your transfer with your payday, or you can schedule it for the first of the month and treat it like one of your bills. Either way, set a clear goal and include it in your budget.
Suggestion: Set a goal to build your emergency account. Decide on an amount that you know you’ll stick with and establish a goal to work toward. Check out Cape Cod 5’s Save for a Rainy Day Calculator to help you get started today.
Split Direct Deposit
Sign up for direct deposit and request that a portion of your paycheck is placed in a separate savings account. This is essentially the same as an automatic transfer, but works especially well for people that want less of an opportunity to change their transfer amount.
Suggestion: If for whatever reason you feel uneasy about automated transfers, use a split direct deposit to fund your savings for emergencies, retirement and other long-term goals.
Paycheck Deductions for Retirement
If you set up a 401(k) at work it will be funded through a deduction from your paycheck. This serves multiple purposes. It takes some of the effort and emotion out of saving for retirement, allows you to make tax free contributions and receive free money through any employer matches.
Suggestion: Open a 401(k) at work and commit to contributing at a minimum the percentage your employer matches. Set up an automatic increase every year that corresponds with any yearly raise. For information on 401(K)s and managing your retirement solutions, check out our post on the new Cape Cod 5 Blog.
Health Savings Accounts
If you participate in a high-deductible PPO for your health insurance, Health Savings Accounts (HSAs) are a one-of-a-kind opportunity to automate your health care savings for both immediate and future needs. It allows you to pay for current medical expenses with pre-tax money, a savings of 12-37% depending on your tax bracket. Once your balance meets a certain cash threshold you may invest the additional funds, grow them tax-free and use them tax-free on medical expenses for the rest of your life.
Suggestion: If eligible, see whether your employer offers an HSA plan. If they don’t, research providers online. Once you have met your employer match with the 401(k), set your sights on maxing your HSA. For more information on HSAs and how manage them, check out our post on the new Cape Cod 5 Blog.
Automatic Bill Pay
Automating your bill pay is a great way to save by budgeting extra money every month to pay down debt and limit the amount of interest you are paying. You’ll also avoid late fees and missed payments, which will help boost your credit and keep your rates lower.
Suggestion: Set a goal to pay off your debt within a certain timeframe, calculate the monthly payment and schedule an automatic payment. Start with high interest credit card debt. You can save hundreds or even thousands of dollars in interest. Cape Cod 5’s Meet a Debt Payoff Goal can help you get started.