How to Automate Your Savings — And Why It’s a Good Idea - WTOP News (2024)

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Are you struggling to prioritize saving? Having trouble building your emergency fund? If so, you aren’t alone.

Despite experts recommending you save up to 20% of your income each month, most Americans have a median savings of only $3,240 to $6,400, depending on age.

Automation can help: By setting and forgetting your savings plan, you can ensure you’re tucking away a bit of your income every month without having to remember to make transfers.

Why Automate Your Savings?

Choosing to automate savings every month can reap a lot of benefits. Not only does it take away the mental barrier of having to remove money from a checking account and deposit it in savings every month, you’re more likely to stick to the pattern when you don’t have to remember to make a transfer.

“Automation is one of the most powerful financial hacks available to us,” says Brad Klontz, certified financial planner and financial psychologist.

“It harnesses the status quo bias — our inherent preference for keeping things the same. For example, once you make the decision to automate your investing, you’re very likely to keep it going. Setting up automatic transfers from your checking account to a savings account reduces friction and dramatically increases the chances that you will meet your savings goals,” he adds.

According to Cameron Burskey, senior partner and managing director at Cornerstone Financial Services, having money in a savings account rather than the checking you use for everyday purchases makes it less tempting to spend. And by automating the transfer, you cut out temptation to spend that money almost entirely.

“When money is automatically deducted from your checking account and deposited into a savings or investment account, you don’t have to rely on willpower to save money. Instead, you’re creating a system that works for you, and that can help you stay focused on your financial goals,” Burskey says.

How to Automate Your Savings

If you’re ready to take advantage of automation to save more money, there are several options available. Most major banks have systems in place to set up automatic transfers or deposits — or you could use a third-party app or employer plan.

[READ: 20 Creative Ways to Save Money.]

Use Your Bank’s System

“Most banks allow you to schedule recurring transfers. This is the easiest way to automate your savings, and it’s free,” Gary Grewal, certified financial planner and author of “Financial Fives,” says.

Simply log in to your bank’s mobile app or website and search for “automated transfers” or something similar. You can typically either set a frequency — such as a monthly transfer from checking to savings — or pick a particular date, like the second of the month, when you know your paycheck will have cleared.

Depending on your bank, you might have even more customizable options, Grewa says.

“As an added bonus, you can use banks like Ally that have ‘buckets’ so that when you make transfers from one account to another, the money is diverted according to your priorities. For example, if you automate $500 per month to savings, $150 goes to your travel fund, $300 to your car fund and $50 toward your new phone fund,'” he says.

Employer Programs

Your employer might already have a program available to help you automate savings as well. Employer-sponsored emergency savings accounts aren’t ubiquitous yet but they are becoming more common post-pandemic.

Similarly to how 401(k) contributions are automatically deducted from your paycheck and deposited in your account, these programs set aside a specific amount or percentage per check into a savings account you can access at any time.

Automatic Savings Apps

In today’s world, there is an app for almost everything and automating your savings is no exception. Popular third-party software including Oportun (formerly Digit), Acorns and Qapital take the work out of setting up automation.

“These apps can help you set up automatic transfers from your checking account to your savings or investment accounts, and many also offer features like savings goals, budgeting tools and investment options,” Burskey says.

According to Burskey, you should read the terms and conditions associated with each app before deciding which is best for you, including the savings and investment options, fees and balance restrictions.

Should You Set Up Automated Savings?

“Overall, automating your savings is a smart and effective way to take control of your finances and build wealth over time. By using the right apps and software tools, you can make it easier to save consistently and stay on track towards your financial goals,” Burskey says.

Saving money is a critical step toward reaching financial security, so if you can make it easier on yourself, it’s a good idea to take advantage of the opportunity.

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How to Automate Your Savings — And Why It’s a Good Idea originally appeared on usnews.com