Saving money can be difficult. Think about it. Would you rather save money or go out to eat and buy new clothes on a regular basis? I think most would agree that we’d rather spend our hard-earned money than put it away. However, if you find yourself spending all your cash as soon as it’s deposited into your checking account, what would you do if the money stopped flowing?
Short-term financial binds happen. They often happen with little to no warning. Whether it’s getting laid off at work or a pricey car repair, there comes a time when we’re all a little short on money. If only there was a way to avoid such a situation, right? Actually, there is! It’s called an automatic savings plan.
If you have no idea what I’m referring to, let me break it down for you. If you aren’t good at saving, chances are you have more money in your checking account than you do in your savings. To balance the two accounts out, start an automatic savings plan. What this does is automatically transfer a set amount of funds from your checking account to your savings account as often as you like. For example, you could choose to transfer $20 from your checking account to your savings account once every two weeks. If you want to save more, you could have a $50 transfer take place once a week. It all comes down to how much you’re looking to save.
The best part about an automatic savings plan is that you decide how often and how much you want to transfer. It’s kind of like you’re giving yourself a little paycheck here and there. This whole savings thing sounds kind of intriguing, doesn’t it? Aside from having your bank transfer a set amount of money, there’s also another way to start saving. If you receive your paychecks through direct deposit, there’s a good chance you can split up how much is deposited to your savings and how much is deposited to your checking.
Before starting your automatic savings plan, be sure to check with your bank about any fees you may incur. Some banks charge a transfer fee, while others waive the fee if your transfer exceeds a certain amount.
Now let’s take a look at what you could do with a little stash of extra cash. Say you set up your plan to save $50 every other week. At that rate, you’ll save $100 a month, which translates into $1,200 a year. If you don’t touch the money, in five years, that extra $100 a month will have netted you $6,000 before interest.
If you think $6,000 is a lot of money, take a look at what saving just an additional $25 every other week can do to your account. By saving $75 every other week as opposed to $50, you’ll wind up with $1,800 at the end of a year and $9,000 after five. Not too shabby, huh?
What could you do with an extra $9,000 in your account? If you wanted to do the smart thing, you would probably invest at least some of that into a retirement fund. A lot of people wait until they’re in their 30s or later to begin saving, which could come back to haunt you later on. You could also treat yourself to a nice vacation or use the money as a down payment on a new home. Let’s just say that with an extra $9,000 in your pocket, you have some options.
Does anyone out there have an automatic savings plan already in place? How has it helped your saving tendencies? Let us know in the comments section below!