It pays to put your savings efforts on autopilot.
When I first started working, I signed up for direct deposit so my paychecks would go straight into my checking account twice a month. Then, at the end of each month, I would transfer any money I had not spent into my savings account.
But the problem with this approach is that within a few months, I haven’t gotten as solid a transfer deal as I would have liked. This is because, like all people, I often fall victim to impulse purchases and allow myself to spend more money than I initially intended. This, in turn, often led to negative feelings afterward.
At some point, I decided to change my approach to savings. Instead of sending money to my savings account at the end of the month, I set up an automatic transfer so that the money arrives in my savings in conjunction with my first paycheck. Or in other words, some of my profits will hurt my savings before I even get a chance to spend it.
Going down this road has worked well for me over the years. Here’s why you might want to take a similar approach to your savings.
1. You will have to avoid temptation
As someone who strongly believes in budgeting, I tend not to spend money without thinking about it. But sometimes, the temptation to spend more may arise.
Years ago, my friends invited me on a last-minute vacation at a cost of about $400. It was really tempting to go. But I had already spent through my spare time money that month, and needed the rest of my salary to pay the bills.
If part of my salary had not already reached my savings, I probably would have continued it overnight. Instead, I didn’t, because the money was already in my savings and I didn’t want to transfer it.
If you send money to your savings account immediately each month, you may have no choice but to avoid impulsive purchases. While this may mean having to let go of some fun stuff, it also means staying on track when it comes to achieving your goals.
2. You will feel less guilt about spending money
As someone who works full time and doesn’t spend money right or left, I have to treat myself occasionally to different things. But sometimes, I feel guilty about spending money when I know I can use that money to mobilize my savings instead.
The plus side of my automatic transfer is that I know I’m doing a decent job of sending money to savings. This helps me feel guilty when I decide to indulge. The logic is that the money I spend is money I can afford, so why do I feel bad about it?
If you tend to give yourself a hard time about spending, this system may work for you, too. You might feel guilty treating yourself to $100 for concert tickets — until you stop and realize you’ve already met your savings goal for the month.
Of course, it’s not just your regular savings account that you can automatically send money to. If you’re all set for near-term savings, you can find an IRA with an automatic transfer feature and send money to your retirement plan as well. You can also find a brokerage account that accepts automatic transfers. Think about the accounts you need to fund to see where your money is going.