Why You Should Automate Your Savings Plan

This post is part of our 21 Days to a Better Budget Series and was written by the amazing, Emily of Morning Motivated Mom! To view all the posts in our series, please click here.

It seems bold to say that making savings automatic can save you thousands of dollars, but it most definitely can. Here is my experience from two loans we paid off – there is a lesson to be learned.

We had a student loan with a monthly payment of approximately $85. This was withdrawn automatically from our checking account every month. We decided to pay off the student loan with a portion of our savings and had every intention to put the $85 into a savings account for our daughters’ schooling. We paid off the loan…and did nothing else.

That was 3 years ago. We no longer had the student loan payment, but because we didn’t immediately set up an account for saving the $85 we ended up spending the money each month. Had we just moved the $85 from a student loan payment to a direct automatic payment to savings, we would have an extra $3,060 in our daughters’ education savings accounts! By skipping the simple step of making it automatic, we ended up spending the $85 each month instead of saving it.

About a year ago, we paid off a second school loan that had a monthly payment of $115. Even before we paid off the loan, I set up an online savings account so that we didn’t make the mistake again. We paid off the loan and immediately set up a monthly recurring transfer to the Education Savings account we set up. Within a year, we now have an additional $1,380 in the account because we made the payment automatically.

Make the decision to save, but then go the next step and make it automatic. If the payment is not automatic, it’s much easier to think: This month is tight, I will save next month.

It’s OK to start with a small amount. Automatic payments add up over time. I am stating the obvious here…$0 will not add up.

Why does the automatic savings plan work so well in helping you reach your savings goals?

Once it’s set up, it is easy and you won’t have to think of it. You are less likely to halt the savings for a tight month when the money is not available to you. Many accounts make it easy to set up an automatic transfer. Even better yet, you can also have your employer directly deposit a portion of your check into your savings account. Never seeing the money in your main checking account may be the best option.

Transferring to an online savings account has worked for us for this main reason: The money is less accessible to us. Because the savings are completely separate from our primary bank, we do not have quick access to it. We have to go online, set up a transfer, and then wait a few days for the transfer to clear the bank. Because of the inconvenience and the time lapse, it is less tempting to “borrow” from the savings just for a few days. (More than likely if we borrowed from our savings, the money just may not make it back to savings.)

I will note that the online account is very easy to manage and set up the automatic transfer. We chose a Capital One 360 savings account – it’s simple to set up and manage multiple savings accounts. The inconvenience comes in when trying to get the money quickly, but it’s a good inconvenience when trying to save.

It puts savings first instead of making it an afterthought. If you receive your income and spend it on your rent, mortgage, groceries, bills, and other daily expenses without taking your savings into consideration, you may not have money left over to save.

When paying off the second student loan (the time we did it right), we decided to put the money towards our daughters’ education. Setting up your savings as automatic is a great way to build your retirement account, build an emergency fund, or start saving for a home down payment.

You do not need to stop with the seemingly responsible savings! If you have wanted to take a special vacation for a long time, but have never managed to figure out how to afford a getaway, you can set up an automatic savings account for a vacation fund.

Once the payment starts being pulled automatically, I highly doubt you will miss it. Because we neglected to do this, we missed out on saving $3,060 and instead spent it. 

Where do you go from here? Use this worksheet to get started…

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Emily is lives in the Midwest with her husband and two daughters. She started Morning Motivated Mom to motivate herself to become an early riser. She enjoys spending the early morning drinking coffee and writing about managing time, money, the home and family. She strives to encourage her readers to enjoy their mornings and consider goal setting.