Automating savings is one of the best things you can do for your finances. It allows you to run your life on autopilot so that you can work on other more important things in your life. It’s great to have an increase in net worth, it’s even better to have an increase in net worth automatically.
When I first joined the workforce, I automated as many things as I could. I automated all of my savings, 401(k), and HSA contributions. That lets me focus my attention and time on other things that are more helpful towards my life. I didn’t have to evaluate and think whether I was saving enough money.
With the help of technology, there are many things that you can automate today. Your personal finances are one of them. The more you automate, the more you leave emotions out of the decision making process. The less emotions you involve in money and personal finances, the better off you are.
You can easily become an automatic millionaire these days with retirement accounts that lets you automatically contribute a portion of your paycheck. I recommend maxing your 401(k), at a minimum while you are going through the millionaire journey. The tax benefits associated with a 401(k) can’t be ignored.
One dollar in a 401(k) is worth more than a dollar in your savings account because of the tax benefits. Your investment returns are not taxed year over year, unlike a traditional brokerage account. Automating savings has changed my life for the better and there’s no reason why it won’t do the same for you.
Too many people go with the inefficient route of manually saving their money, which is open to error and you sure don’t want that.
How to Automate Savings
So now that you’re convinced that it’s best to automate your money and finances, let’s get into the actual how of it. One way that you should be automating savings is to SMASH that social share button and post to your favorite social media!
Your friends could be one of the people who doesn’t automate their money and doesn’t take advantage of the many benefits. Once your friends learn about the benefits of automating their finances, their lives could be significantly be better! All they have to do is enjoy the ride while they let technology do all the work and heavy lifting.
So with that said, let’s go over the concrete steps you can take to automate savings.
1) Participate in a 401(k) Program
One easy way you could be automating savings is to participate in a 401(k) program. Approximately 65% of companies offer a 401(k) program. The best part? You decide the percentage of your paycheck that you could contribute to. Even better is that all of the process is automatic.
There are fund options that you can choose from. Whichever fund that you choose, the computer applies your salary to the fund option you choose automatically. There’s no need to check and make sure to remember to contribute towards your retirement.
All you have to do is live life as normal. I currently max out the $19,500 contribution limit (for 2021) and have no plans to change that. Not as long as I’m working. This is one of the simplest ways to automate your savings. Companies offer a 401(k) matching on top of your contributions as well.
Icing on top of the cake.
2) Automate Savings by Splitting Your Paycheck
Another easy trick to automating savings is to split up your paycheck. If you have both a savings and checking account, you could split up your paycheck for money to hit each account separately. I currently separate my paycheck between multiple accounts that’s used for different purposes.
One for spending and one for saving. Additionally, I used this approach to get banking sign-up bonuses that required a minimum of $500 per month direct deposit into the account. All I had to do was add a separate bank account to send my paycheck to then I enjoyed the sign-up bonus. That was a good day.
You could set up a completely separate emergency fund account and watch as the money grow steadily over the year. This approach is especially useful if you see money as fungible and spend regardless of knowing that you should be saving money.
Many companies have the infrastructure set up in place to offer this, which is a great option for you.
3) Set Up Autopay
Another great invention is the option for customers to use Autopay. When you set up Autopay, you don’t have the option to forget because the it’s already done for you. That means there’s no late fees to pay. You can easily be automating savings by automating your spending.
That way, you know exactly just how much of your money is leaving you every month. Most expenses that allow Autopay means that it’s fixed expenses that doesn’t fluctuate month over month. That gives you greater control to plan on what your monthly spending will be like.
I currently have Autopay set up on my credit cards, cell phone bill, internet bill, rent, and the like. I haven’t logged into those accounts in such a long time and I have no need to log into those accounts either. When everything is running smoothly without your involvement, you will have a better time.
4) Connect to a Net Worth Tracker
A great way to be automating savings is to connect your financial accounts to a net worth tracker like Personal Capital. That way, you can clearly see how your money is changing over time without having to individually and manually keep track of each account.
It will do wonders for your life. It gives you a big picture snapshot at the touch of your fingers. You don’t need to make a spreadsheet and manually update things every day. Any changes you experience on a day to day basis gets tracked automatically.
A bill you pay on your credit card gets recorded as a subtraction to your net worth within days. Or any other money that goes into your bank accounts gets recorded as an addition. Many people don’t even know what their net worth is either. What doesn’t get measured can’t be improved.
Therefore, it makes sense to track changes to your net worth.
5) Automate Your Investment Account
Now that we’ve gone over in automating savings in your tax advantaged accounts, let’s go over automating savings in your investment accounts. A popular brokerage account, Robinhood, lets you automatically schedule how much of your money you would like to contribute to your account.
You can set up once, weekly, twice a month, monthly, or quarterly contributions to your investment account. There’s no need to manually remember to do it. All you have to do is actually set it up once and forget about it. Which is the best kind of strategy to employ, especially when it comes to personal finance.
You can not only see your account balance increase because of investment returns but through consistent and recurring contributions! A double whammy of a win, especially considering just how much your investment returns will be down the road.
Should You be Automating Savings?
You should ALWAYS be automating savings. It’s quite difficult to keep up with your finances, work, and your personal life. Remember that the less mundane decisions that you make day-to-day, the better off you are at making high stakes decisions.
More so than that, there’re no chances for you to make mistakes or forget. There’s no way that I wouldn’t forget to contribute to my investment accounts if necessary. No way that I wouldn’t forget to pay a bill when I was away on vacation for a week that bills were due.
Not only can automating savings save you money by avoiding unnecessary fees, it can help make you money by contributing to investment accounts. I don’t know how I can talk about having a $200,000 401(k) balance account without the help of automation.
Why Automating Savings is Great
Now that you know how to automate your finances, let’s go over the reasons how great it is to automate savings.
1) Automating Savings Keeps Emotions Out
Remember that we actually physically feel pain when we spend money. When we have to transfer money out of our bank accounts to another account, it doesn’t make us happy. That’s why you should be automating savings. It keeps emotions out of the entire process.
It keeps emotions out of your investment activities as well. My investment returns are so much better off by taking out the emotional aspect of investing. All I do is invest in a broad market index fund and let it ride.
No matter what, every two weeks, $1,000 or so gets contributed to my account. Into the S&P 500. Without fail. Automatically. Emotions have ruined many people’s lives when it comes to investing. It makes you want to sell when the market is down and buy when the market is high.
Therefore, it’s very beneficial to avoid it if you have the option to.
2) No Chance of Temptations
Automating savings allow you to be better at resisting temptations. When it comes to money, you will feel entitled to what are called “discretions”. Because it’s your money, you feel entitled to spend however you want to spend it. One month, you may spontaneously decide to not contribute money to an investment account.
You may rationalize it by saving “well, this month was especially hard.. and I need the money”. That’s dangerous. You may say that more times than you may want to. When the default position decision is made for you already without additional consideration from you, you are less likely to change it.
It’s a way to protect yourself from yourself. You are barring your present self to protect your future self in the event you are feeling like you want to spend money. Your finances will run like a well-oiled machine so that you don’t have to lift a finger to better it yourself.
You can just sit back, relax, and watch as all the work gets done for you.
3) Automating Savings Saves Time
There’s absolutely zero need for you to waste time figuring out which bills you need to pay for the month. No need for you to figure out if you contributed to your investment accounts. No need for you to log into any accounts that you need to access. It’s completely and utterly hands-free style approach.
Your brain is already cluttered enough with things that you have to accomplish throughout the day. Whether it’s through chores, work stuff, family, or any other obligations that you have. You are already busy enough with limited time to deal with. If you can save 15 minutes here and there, it’s all worth it.
Those 15 minutes add up to huge amounts over a year, decade, and life. Automating savings doesn’t just help with saving money and making money, but it helps with saving time. That’s a triple benefit. With all of the saved time, you can read even more of Filled With Money articles!
4) Leaves Room for Other Important Things
The fewer mundane and monotonous decisions you make, the better off you are. There’s a reason why Mark Zuckerberg only wears one line of clothing over the long term. He limits the amount of decisions that doesn’t matter that much over the long term.
That way, he can focus on more important aspects of his life that adds more value to him. Things like strategizing how to better Facebook. It’s a small thing that makes a big impact. Just making a single decision takes up more brainpower than you may realize.
Some studies suggest we make around 35,000 decisions per day. While it is questionable at what they are counting as “making a decision” the point is that it’s a lot. When you undergo decision fatigue, your brain starts to get lazy and makes concessions.
It starts to look for the fastest decision and not the most optimal decision. When it comes to the really deep and important stuff, you don’t want to cut corners.
Automating Savings Will Change Your Life
As soon as I started automating savings, my net worth started to experience a positive climb. I had no other choice but to apply it to bettering my financial situation. When I had no other option but to resist the temptation, then I had no other option but to increase my net worth.
I can’t imagine how many late fees I would have had to pay if I didn’t have Autopay on. When I would have forgotten to pay rent because I was out of town and on vacation. All I have to do these days, is log into my Personal Capital account and watch as my account balances slowly grow over time.
When you force yourself to make good decisions through automation, you have no other choice but to be better. When you force yourself to save for retirement, your retirement account has no choice but to balloon. Automating savings will make time become your enemy.
When the only thing standing between you becoming a millionaire and today is time, then everything is just off your hands. All you have to do is bide your time until you get there while you enjoy life outside of working hours. That’s the best position to be in. When time works very hard for you.
Let your hands off the steering wheel while you let others drive you to your destination. You’re already working hard already with other obligations that life has in store for you. You deserve to let others do all the work while you just sit back and watch the money roll in.
Always try to work smarter and never harder. More effort does not mean better. Take the easy way out, it’s a great spot to enjoy.
How to Automate Savings List:
- Participate in a 401(k) program
- Automate savings by splitting your paycheck
- Set up autopay
- Connect to a net worth tracker
- Automate your investment account
