Automated Savings

Dear Dr. Per Cap: 

I’m struggling to save money every month.  What’s the best way to make sure I consistently save a portion of my paycheck?

Signed, 

Focused on Retirement 

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Dear Focused,

Make saving as simple and effortless as possible.  A very easy way to do that is to set up an automatic transfer from your checking account into your savings or investment account every pay period.  

I recommend starting with an auto transfer that isn’t too much, so you don’t feel too much of a pinch.  An amount between $25 and $100 depending on your situation is ideal and your bank will have options for which day or days of the month the transfer(s) will occur.  

You’ve probably heard the old saying “pay yourself first”.  This is one way to do that along with maintaining an attitude that saving is just like paying another bill.  It’s money that is spent – out of sight, out of mind.

You’ll also want to think about what type of account your savings are being transferred in to.  If it’s a basic savings account at your local bank or credit union, make sure not to link it to your ATM or debit card.  Less access means less temptation.

If you transfer into an investment account, consider an Individual Retirement Account (IRA) that has restrictions on early withdrawals.  You can still keep it as cash in an IRA by placing it in a money market mutual fund as opposed to purchasing stocks and bonds that might fluctuate in value.

Then kick back and watch your savings grow.  It’s also a good idea to periodically review the amount of your automated transfer.  Let’s say you start with $25 each pay period and after a few months you realize it’s a breeze to save that amount.  In that case consider bumping your auto transfer up to $50 a pay period.  If that turns out to be a little too much and you’re having trouble keeping up, you can always lower it back to an amount that’s more manageable.

Good luck and Happy Saving!