hen you’re in the midst of a busy life it can be hard to get motivated to start saving for your financial future. You know you need to, but you don’t. A lot of us aren’t saving enough. The Center for Retirement Research at Boston College found that workers are estimated to be $6.6 trillion short of what they need to retire comfortably. The Employee Benefit Research Institute released findings that 48% or workers of all ages had less than $10,000 in savings for retirement.
So how can you get started on saving enough for a nice big emergency fund, and to be able to save for retirement? Try making things automatic!
Automating Your Deposits Leads To More Savings
If we don’t put systems in place and take the time to make savings automatic we’ll often erect passive barriers to saving. For example, we’ll decide not to start saving because “It’s going to take too much time to open a new account, and I don’t have the time right now – I’m too busy“. We come up with reasons not to do things, when in reality those reasons aren’t very good. The fact is, if you take the time to set up automated savings systems, you’ll end up saving more money in the long run. Making things automatic – and the default – matters.
A study from the National Bureau of Economic Research found that when found that making 401(k) accounts opt-out instead of opt-in (meaning employees were automatically enrolled in a 401(k) unless they specifically opted out), raised contribution rates from less than 40% to almost 100%. By the same token, if you can make those automated savings withdrawals be the default action instead of having to do it manually every month, you’re going to be saving a lot more money. Having something be automatic matters.
Tools For Automating Your Savings
What are some tools that you can use to enable you to save more, by making things automatic? Here are two savings accounts that I have used personally to boost my savings without my intervention.
Digit.co
I’ve been using a Digit automated savings account since earlier this year, and it’s enabled me to save over $3000 over the past 10 months.So how does Digit work? You setup a savings account with Digit and then you link it to your main checking account. Digit will then analyze your checking account transactions and balance, and when it feels like you have money to spare, it will automatically transfer money into your savings account in small increments.
For example, last month I saw the following amounts saved by Digit: $5.04, $17.26, $21.56, $20.99, $3.52, $90.90, $8.18, $33.94, $19.80, $11.55, $5.14, $6.55. While none of the amounts listed seem like too terribly much, when you add them up over the entire month, it adds up to $244.43.
I can see Digit being a great way for a family to save up an emergency fund when funds seem tight, or as a way to max out your Roth IRA contributions every year. Since the account is free it’s definitely worth giving a try.
Capital One 360
Another online savings account that can make saving easier and automatic is the Capital One 360 savings account. Capital One 360 allows you to setup multiple savings accounts for multiple savings goals if you want. I personally have 2 accounts setup with Capital One, one that I use to save for our next car purchase, and one to save for vacations. Just setup the account, name it by whatever savings goal you want, and then set it to withdraw money from your checking every month on a specific day.
It’s amazing how over time those automated savings amounts add up and end up being larger amounts. For example, the “Next Car” savings account has a $200/month withdrawal setup. Over the course of several years it adds up to thousands of dollars, and by the time we need a new car we should have enough to pay for it in cash (or at least have a huge down payment).
Tools For Automating Your Investments
Investing money for the long term begins by making sure you’re actually invested in the market in the first place. The following two tools are highly recommended to get more invested in your brokerage accounts.
Betterment
Betterment is an online investment advisory that allows you to invest in a fully diversified ETF index fund portfolio, for a low annual fee. I use Betterment and love it. Like most investment services Betterment allows you to setup automated deposits and investments every month on a specified day, and I do that with my Roth IRA. Unlike most brokerages Betterment now also has a new automated investing tool called “Smart Deposit“. What Smart Deposit allows you to do is setup a maximum balance for your checking account, and then a maximum investment amount. Betterment will then check your account at least once a week, and if the balance is above your maximum balance it will invest those funds up to your maximum investment amount.
For example, if you setup a maximum balance of $5000, and you have $5500 in your account with a $500 maximum investment, it will invest $500 for you in your taxable Betterment account. It just happens for your automatically. Great concept.
Acorns
Acorns is another investment platform, similar in some ways to Betterment, that allows you to invest in a fully diversified portfolio for a low monthly fee. Acorns has a couple of ways that you can automate your investing decisions. First, it allows you to invest your pocket change. How does it do that? You link your checking, debit and/or credit card and it will monitor your daily transactions. It will then round up your daily purchases and invest that spare change once the amount reaches at least $5.
So if you have a transaction for $2.40, it will set aside the extra .60 cents. These roundups continue until you have at least $5 to invest, and at that point you can have it set to automatically invest the money (recommended) or invest when you trigger it manually. Second, acorns allows recurring scheduled deposits as well. Setup a deposit on a specific day, and it will invest for you. Two ways to automate and invest, to make your balance grow.
Saving & Investing Is Better When Automated
When you’re thinking about saving and investing, you want to make sure that you’re saving enough to reach your goals. One way to ensure that happens is to automate your savings goals, and your investment deposits.
The four companies mentioned in this article may not be the only ones who allow you to automate your savings and investments, but they are among my favorites, and ones that I would recommend.
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