One of the best tips I’ve learned (but don’t always follow) for saving as much money as I can is to automate savings/investing. It’s actually really simple and easy to do, yet I feel like it’s a pretty underutilized strategy amongst young professionals. In an effort to encourage you (and myself) to do it more, I thought I’d dive in and explain why I think it works so well! 

How it works

There are lots of ways that you can automate your savings and investing! Let’s start with what you can do through your employer. For many of us, we get a paycheck every other week or twice a month and oftentimes it’s directly deposited right into our bank accounts. Automatically, they do pull out taxes; Federal, State, Social Security, and Medicare, although you have some flexibility with Federal and State with the number of deductions and/or additional withholding. In addition to that, you can also have your employer automatically pull out a few other deductions: retirement (401k), potentially an Employee Stock Purchase Program contribution (ESPP) and FSA/HSA money for healthcare or daycare. Typically these are all pretty solid uses of your money and often take advantage of tax-preferred programs. So, if and as you’re able to contribute and live without that money, it’s wise to take advantage of these programs, as you’ll save on taxes and potentially earn that free match for the 401k or the stock discount from the ESPP. Once you’ve got it setup, each paycheck your employer will pull that money out at the ratio you’ve chosen, all automatically! 

Outside of your employer, you can also automate your savings on your own by setting up reoccurring transfers at a specified date each month. You can do this with your savings accounts, investing accounts, and also your retirement (IRA…individual retirement account) accounts. It’s just as quick and easy and will happen automatically! 

Why it works so well

I don’t know about you but I often fall victim to having money ‘burn a hole’ in my pocket, i.e. feeling the need to spend my money. We all work so hard for our paychecks and with life being so short and uncertain, we like to enjoy our money in a manner that we choose. Prior to COVID this was traveling for me and Mrs. Money and I always found it hard to say no to booking another trip or vacation, whether short or long, domestic of foreign! Fast forward to our COVID world, online shopping, takeout/delivery and even groceries have become my weakness. Not being able to window shop has led to online browsing and not being able to eat out has led to more delivery and not being able to afford takeout as much has led to more groceries! The point here is that money can be tempting and even with the best budget or self-control, it can be tough not to click “purchase now”. 

In my actual budget, I do have a plan each month to save/invest some money. I’ve got a general savings bucket and a car savings bucket (I always pay cash for cars). However what I find is that more often than not, I end up pulling from those buckets for other purchases. Sometimes it’s a legitimate use of our savings money, i.e. something for the house (like gutter cleaning) or car repair (which oddly we’ve had a lot of recently). Outside of that we do a little more frequently than I would like dip into those saving buckets for extra thing like takeout or groceries. So, I think I’ve proven to myself that left to my own desires I won’t be saving as much as I intend to. 

The good news is that by automating my saving and investing, I know that I’m not going to be tempted to spend that money if it was just sitting there in my bank account. By having my employer pull out money each paycheck I have the peace of mind to know that I am saving and investing, albeit it ‘behind the scenes’ as I don’t see that money in my bank account. I don’t as of right now have any personal automatic transactions but writing this post is making me think twice about it! What’s also great about automating my savings and investing is that it allows me to feel better about spending what I do have in my bank account. If I dip a little into my savings buckets, I won’t feel as bad as I could, knowing that I’m automatically saving 15% for retirement, 12% to my employee stock program and putting away money for healthcare and daycare expenses. 

Why it might not work

No system is perfect, not even automating your savings and investing. The main downside is if you save/invest more than you can feasibly afford to do. Getting retirement or employee stock money isn’t very easy at all to do, same with healthcare/daycare HSA/FSAs. If you saved/invested more than you should have and left yourself with too little money to live or pay the bills, then of course you run into the headache of trying to pull that money out or carrying a balance on a credit card. It’s super important to have a good understanding of your fixed expenses (bills you must pay) and a good average of your variable expenses (gas, groceries, other shopping or expenses). Make sure there’s a buffer between what you need to have in the bank to live each month vs. what you are automatically pulling out! 

The other reason it might not work is that you’re saving more than you feel comfortable with, to the point that it’s taking away from your enjoyment in life on a day-to-day basis. I believe that a balanced life is the way to happiness and if you’re saving so much to the point you’re resenting yourself for saving/investing, pump the brakes a little! It’s good to spend and enjoy your money now so make sure you leave enough room for that! 

Summary

The main reason that automating your savings works so well is that it’s not easy to spend money you don’t have (i.e. your employer pulls out for you), it’s one less thing I have to remember to do and it saves me fighting the temptation to spend that money!