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Having money set aside is an important step on the road to financial freedom. There are many things you should be saving for: emergencies, vacations, large purchases, etc. It is recommended that you have six months’ worth of expenses saved up and it is always better to use cash for large purchases like traveling or a down payment on a house rather than borrowing or using credit cards.
Building Your Savings
A lot of us think we can easily set aside a little from each paycheck on our own, but we then find ourselves, time and time again, coming up with a reason for why we can’t. The best way to start saving money, and actually keep saving money, is to automate your savings. Automating your savings allows the amount you set to come out of your paycheck, well, automatically. This makes saving as painless as possible. Out of sight, out of mind, if you will. Follow these steps to get started saving today.
Step 1: Research Your Options
There are a few options when it comes to automating your savings:
Talk to Your Employer
You can talk to your employer about splitting your paycheck so that a portion of it goes into your savings account. Most companies can do this and it is simply a matter of filling out a form. This is the most ideal as the money is moved before you see your paycheck, so you quickly get used to seeing a lower amount in your checking account.
Talk to Your Bank
Speak to your bank and set up a recurring money transfer so that the day your paycheck hits, a portion is transferred to your savings account. This is very close to being the same as having your employer do it but might be a little more noticeable to you. So, if you are the type that really needs it to be “out of sight, out of mind” then having your employer do it for you is the best option.
Use an App
You can use a third-party app. There are several that can help you automate your savings, but my personal favorite is Acorns. While, technically, it is app that helps you save your “lose change” by rounding up all your card purchases and then transferring that amount from your checking into your Acorns account, you can also set up recurring deposits. If you have a fairly stable paycheck, set up a recurring deposit. Your Acorns account invests your money so you can also earn additional money.
Step 2: Pick the Best Plan for You and Set It Up
Once you have reviewed your options, pick the one that is best for you or choose a combination. I, personally, use Acorns for the “lose change” option as well as having a small amount transferred to my savings account each week. If you do choose to use Acorns, you need to make sure you have a reserve in your checking account for Acorns to pull from each week. This will take more planning on your part. I always try to leave no less than $50.00 in my checking account for Acorns transfers and in case I need to get a little cash out.
Step 3: Step Away and Let Your Savings Grow
Once you have implemented your plan, step away and let it do its thing. The nice thing about Acorns and other apps like it is that you almost forget it exists, so you aren’t constantly staring at your savings. You should keep an eye on you plan and review it every month or two but don’t keep such a close eye on it that you become tempted to use your savings. Remember, you need to save up an emergency stash of about 6 months’ worth of expenses plus any other large purchases you plan on making.
In Addition, Use a Budget
If you are looking into a way to manage your money more carefully, take a look at my budgeting plan. It is simple to use and has really kept me on track for the last 10 years. It allows you to budget by paycheck rather than just monthly which gives you an insight into any extra funds you have from each paycheck to put towards debt or additional savings.