The easiest way to save? Automatically!
It doesn’t matter how much, what you’re saving for, or why you are saving. When you make the smart decision to have a portion of your income automatically deposited into a savings account, you have increased your chance for success. Today, our focus will be driving Americans to take action by saving automatically through the split deposit.
One of the most frequently cited reasons people give for not saving is they cannot afford it. While that is undoubtedly true for many, especially now, there may be ways to adjust priorities to find small ways to save. One way to force yourself to save is by automating your savings. Automating your savings could give you the incentive you need to get started. When you automate your savings, you make the process simple and painless. Here are four simple ideas to get you started.
#1. Sign Up for Your Company 401(k) or 403(b) Plan
Participating in your company 401(k) or 403(b) plan is perhaps the easiest way to automate your savings. The money you contribute comes out of your paycheck automatically, and the amount is deducted from your taxable income. Even if you think you cannot afford to save for retirement, try contributing 1% of your paycheck. You may be surprised how easy and painless it is to put money aside for retirement.
You can make the investment plan even more valuable by signing up for the auto-escalation plan if your company offers one. These plans automatically increase your contribution level each year, letting you save more and make retirement preparation easier.
#2. Set Up a Monthly Account Transfer
If your emergency fund is underfunded, check with your financial institution about a monthly transfer from your checking to your savings account. Such transfers are easy to set up, and are usually free of charge.
Setting up a monthly transfer is the perfect way to put the “pay yourself first” strategy into practice. By treating that transfer just like another bill, you take the guesswork out of the process and make it easier to grow your savings account or emergency fund.
#3. Split Your Direct Deposit
You do not have to deposit your entire paycheck into your checking account. Splitting your paycheck between a savings and checking account is a great way to automate your savings and force you to put money aside.
Check with your employer to get the form you need to redirect part of your paycheck to the savings vehicle of your choice. Many employers allow workers to allocate their pay based on percentages or dollar amounts, so you can choose the option that works best for you.
#4. Use Your Tax Refund to Jump Start Your Savings
With the average tax refund hovering around $3,000, there is a lot of money sloshing around come April 15. Unfortunately, a good portion of that money is spent on one-time purchases and other indulgences.
Make this the year you jump-start your savings. If you file electronically, have the tax refund sent to your savings or money market account instead of your checking account. If you file on paper, allocate part of your refund to your favorite investment, or better yet, use it to fund an IRA. Contributing money to an IRA will jump-start your retirement savings, but the money you set aside could reduce your future taxes as well.
Nothing can make saving for the future completely painless, but the ideas presented above can take the guesswork out of the process. If you have been putting off saving and investing, now is the time to get started. The sooner you start saving, the easier it will be to meet your long-term goals.
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