Set It and Forget It: The Smart Way to Automate Your Savings

Saving money doesn’t need to be as complicated as it sometimes seems.  In essence, it’s about being responsible: spending within your means and transferring the remaining funds to a safe savings account that earns interest.

The process could be further simplified by automating the savings transfer.  This is easy enough to do with basic IT knowledge.  By automating the process, users can rest assured that their savings goals are met even if they don’t pay close attention to it.

Understanding Automated Savings

Automated savings simply means automatically transferring funds from a checking account to a savings account.  However, there’s a lot of nuance when you get into the details of it.  Users can choose the amount to transfer, the percentage of their checking account to allocate, and automate transfers from stock and crypto exchanges to their checking account.

Most users choose to do this first, meaning they do it as soon as their income is deposited into the checking account.  That way, they pay themselves first, then focus on ongoing expenses.

Set up Clear Savings Goals

Before transferring any funds to savings, the user should set up a clear savings goal.  That decision will inform the rest of their efforts.  Many beginner investors use the SMART acronym to help them decide on their savings goals.

It stands for Specific, Measurable, Achievable, Relevant, and Time-bound.  For instance, a well-defined savings goal should look something like this: “Save $5,000 for an emergency fund and do so in 12 months with monthly installments of $420”.  This makes it easier to automate the process, track its progress, and expand it when needed.

Different Types of Savings Accounts

There are different types of savings accounts, and they vary in how much interest they can yield.  As a general rule, accounts with lower interest rates are better used for long-term savings.  It’s also important to understand that crypto exchanges could also be used to store wealth.

 For instance, crypto exchanges in Australia allow users to keep their funds in wallets provided by the exchanges.  That way, these funds could be used for trading right away.  It’s up to the user to choose when it’s the right time to transfer some of the profit to savings. Experts such as those at Webopedia also advise having a separate crypto wallet of your own if trading large amounts. 

The most common types of savings accounts are:

•         High-yield savings account.  These are best kept for emergencies, as they are easy to access, while still earning interest.
•         Certificates of Deposit (CDs).  These offer higher returns, but the holder must lock their funds for a set period.
•         Investment accounts (such as brokerage or retirement accounts).  These are made for very long-term savings, such as retirement savings.  They come with risk, but they also have tax benefits.

Set up Automated Savings

Once you have these accounts in place and have chosen how much of your funds to dedicate to saving, all that remains is to automate the process.  In most cases, it means selecting the date the transfer is made and the percentage of funds to allocate.

The percent depends on your goals and your overall financial standing.  For those under 40, 10% is a typical amount, and it should increase as your spending decreases and you get closer to retirement.  This doesn’t have to be your only transfer, and there are other, more sophisticated apps for different purposes.

Use Apps and Digital Tools to Boost Automation

There are apps and digital tools that could further boost automation.  Here are a few common ones that investors should consider, but that don’t suit everyone.

Rounding apps round your purchase to the nearest dollar and transfer the spare change to savings.  These are small amounts, but they do tend to add up over time, especially for those who make many small purchases.  For instance, if you spend $3.70 on coffee, $0.30 could go straight into savings.

Rule-based apps, also known as “if this then that” apps, can automate savings based on conditions.  For instance, a user can provide a command such as “save $5 every time I use a food delivery app”.  That way, savings offset other spending.

Employer payroll split apps allow employers to deposit a portion of payroll directly into a savings account.

Other Transfers Could be Automated Too

Other shared transfers could be automated, as long as they are regular and the amounts are fixed.  For instance, debt payments could be handled in the same way.  This means that the user doesn’t have to worry about paying their debts on time.  It’s also easy enough to make these payments as soon as you have the funds to do so.

Investment can be automated, especially for those who invest in simple investment funds, by transferring a percentage of your paycheck into the fund and letting it generate income over time.

Review and Adapt

Automation has its benefits, but it doesn’t mean investors should rely on it 100% of the time.  Instead, it’s best to review your saving goals and your overall finances periodically and adjust your system accordingly.  This should be done once a year or after a significant financial event.

In many cases, investors aren’t aware that they are doing better, and their finances have improved enough to put more towards savings.  By making a review a regular staple of your financial practices, you can adjust your savings more frequently.

To Sum Up

Savings could be automated using very simple digital tools and apps.  There are many reasons to do so, starting with the ability to set up a system and forget about it.  Putting a system in place also allows investors to track small expenses that could be turned into savings instead of being wasted.

The key is to carefully analyze your finances and choose the savings goals that best suit your needs and plans.  Other financial transactions, such as debt payments and investments, could also be automated, and investors would retain full control over when they transfer funds to savings and how much they save.