Are you interested in saving more money? Most people are, but they find it difficult because of all of the temptations surrounding them each day that require them to part with their hard-earned cash. Instead of trying to increase your willpower, it may be easier for you to take away your ability to spend the money that you intend to save. To accomplish this, have the amount that should be saved removed from your spending funds by splitting your direct-deposited paycheck into separate accounts and having your savings automatically deposited.
The Benefits
Placing the money into a savings account as soon as it is received is one of the most effective ways to save money. If the money has never been put into your checking account, chances are you will not count it as extra money to spend. You will find that the balance of your savings account increases much more quickly and you will not have to make any lifestyle changes to accomplish your saving goals.
How To Start
Many company payroll departments now allow company employees to deposit their paycheck into more than one account automatically by filling out a form allocating specific amounts or percentages to each account. The form is then returned to the payroll department, which makes the automatic deposits into the designated bank accounts on the employee’s behalf. After setting up the initial deposits, the employee does not have to do anything else until they would like to change the amounts that are deposited into each account, which will require filling out another form.
Recommended Amounts
If you have a significant amount of disposable income left over after you have paid all of your typical monthly expenses, you should be saving at least 15% of your income into an interest bearing savings account every time you receive your pay. This allows you to create a significant emergency fund and have money available for unexpected expenses so you will not have to use expensive credit or payday loans to handle the situation. Having 15% of your income being placed into your savings account will not remove a significant amount from your available funds so you will not have a noticeable change in your quality of life.
People that do not have a great deal of disposable income or are living paycheck to paycheck can still take advantage of the benefits of saving. Diverting as little as $25 dollars per pay can quickly add up to a significant amount of money, nearly $600 per year, which can be used in the event of an emergency. Taking this money out of the equation before you have a chance to realize it is there greatly reduces the risk that you will spend the money instead of saving it.
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The importance of this one action can’t be stated enough. Automated savings are the fulcrum for transforming your finances and ensuring wealth in the future. Just don’t touch those savings though – leave them to grow!
That’s right. You can’t increase the balance of your savings account if you are always withdrawing money to spend. Leave the funds alone and let compound interest work for you.