Does anyone out there like being lazy? Ok, maybe I should reword that question; I think I will get some mixed results to that one. Does anyone out there like doing less work for a better result? Ok, there is the wording I’m looking for!
I’m talking about automation. This isn’t cutting corners or skipping steps. Think of it like when the washing machine was invented; all of a sudden you could throw your laundry in the washer and go do other daily tasks. You received more output of laundry cleaned AND other work could be done as it was washing. Multiply this by your dish washer, your dryer, your toilet, your refrigerator, and you may start to realize that your life is basically already automated. But I bet when it comes to having you save money and invest, you are not fully automated.
Funny enough, the area where automation of savings probably works best for you is your 401k plan with your employer. Now that is automation right there; you get your paycheck AFTER you contribute to retirement. And guess what, it works. It’s a weird psychological thing where you have this savings going on automatically and you just forget about it and it allows you to save a lot of money. Maybe every few months or once a year you look at it, and then you go about your business and forget about it again.
This article is going to show you how to create that same psychological effect you experience through your 401k, but with savings and investing in other areas so you can save money.
We will discuss two strategies for the automation of savings. Then we will go over how to link those strategies to an investment automation strategy.
Depending on the strategy you use, the automation of your finances should look like one of these two models in the end:
Let’s get started! We will start with automation of savings, strategy one.
Automation of Savings
Strategy one – double direct deposit to save money
This strategy is to be used only if you have an HR department that will allow you to setup two direct deposits. If you do not have the ability to setup two direct deposits, you can proceed to strategy two below.
These are the five steps to take in order to automate your savings with a double direct deposit strategy to save money:
Step One: You should have a budget in place so you know the correct amount of money you should be spending and how much money you should be saving per month / per year. If you need to brush up on budgeting, you can read our post on budgeting here: Budget Post
Step Two: You may have a checking and savings account already. It is preferred you have a checking and savings account at two different banks so you may separate the savings completely. Otherwise, you run the risk of comingling funds out of convenience.
Step Three: If you have a responsive HR department and access to direct deposit, they may allow you to setup two direct deposits for your paycheck. You may be surprised that your employer will allow this.
Step Four: Now that your HR department has helped you setup a second direct deposit, you will link your savings account to one of the direct deposits and your checking account to the other direct deposit. This is going to allow you to receive a paycheck net of savings.
Step Five: You need to get rid of any easy access to your savings accounts. I would suggest you don’t even sign up for online banking. This will allow you to set it and forget it. Letting the savings automatically accumulate over time.
There you have it! You are now automatically able to save money and you don’t have to worry about your spending! You can sit back, relax, and know that your savings is on autopilot in the background. You may even sleep better at night.
Strategy two- single direct deposit to save money
This strategy can be used for anyone who has access to direct deposit. This strategy does not separate savings from spending to the same degree as strategy one, but it still does a great job automating the money saving process.
Here are the seven steps to help you automate your savings with one direct deposit:
Step One: You should have a budget in place so you know the correct amount of money you should be spending and saving per month and per year. If you need to brush up on budgeting, you can read our post on budgeting here: Budget Post
Step Two: You may have a checking and savings account already. It is preferred you have a checking and savings account at two different banks so you may separate the savings completely. Otherwise, you run the risk of comingling funds out of convenience.
Step Three: Many people these days have access to direct deposit. If you do have access and it is not setup, contact your HR department and have them help you set it up.
Step Four: When you setup direct deposit, make sure it goes to your CHECKING account (not savings).
Step Five: You will now need to link your checking account to your savings account. This can usually be done via online banking. If you can’t figure out how to do this, either call your bank, go to your branch, or try chatting with your bank when inside your online banking portal.
Step Six: Now we need to create the automation process. Go into your online banking and have a transfer setup so that the savings amount you have decided will draft from your checking to your savings. You can set this up so it happens the day after you receive a paycheck. Or, you can set this up monthly on your preferred day of the month.
Step Seven: You need to get rid of any easy access to your savings accounts. This will allow you to set it and forget it. Letting the savings automatically accumulate over time.
That’s it! Each month your savings account will grow by the amount you have decided to transfer. You can now relax knowing that you are automatically saving money each month with no extra effort.
Automation of Investing
Once you link your direct deposits to your checking and savings accounts, you can now link your investment accounts to reach ludicrous speed automation!
Here are the steps to automate your investments:
Step 1: Decide how much money you will be allocating into each investment class. Keep in mind that if you do not have your emergency fund built up yet, you may wish to not attach these accounts until that goal has been reached. Or, you may wish to allocate a portion to these investments, and leave a portion in the savings account so it continues to grow.
Step 2: Now that you have decided how much to allocate into each of these categories, you can link each account to your savings account. Set the amount of money you wish to have deposited in each account and, voilà, you have automated your savings and investing.
This is what the two strategies look like in the end:
So there you have it. You have no excuses not to automate your savings. I mean, there are even pictures in this! It’s like a children’s book of savings. The only thing I didn’t do was rhyme for you, to make it true, and to glue it to, your brain, is this going through? Ok there you go, now it rhymes too!
Does anyone have any positive experiences automating their savings? Does anyone struggle to save and not tried to do something like this? Is my rhyming terrible?
