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Robust savings accounts are an important aspect of financial health. Learn how to grow your savings account automatically by harnessing the power of automatic funds transfers.
Tapping the side of my phone, I urged my bank app to load.
I needed to buy my plane ticket soon, but I had no idea how much I’d saved. Or IF I’d saved.
The screen finally finished loading, and my lungs deflated like a pair of woopie cushions when I saw the balance.
$81.
It was either skip the trip to Reno, or revisit my college days of eating Ramen for every meal in order to save up the money super fast.
Turning off my phone, I averted my gaze from my reflection in the blank screen.
“I have to stop doing this,” I thought to myself.
So I did.
Why Savings are Crucial
I ended up scraping together the money to go see family in Reno. But man, it was painful. I cut down on driving to save gas money, and ate Ramen noodles to reduce food costs.
I had known I needed to save that money. We’d been planning that trip for months. I kept forgetting put money aside for it (Or for anything else), and put myself in a bad situation.
Having adequate savings is crucial. I’m sure you know this. I knew it too, back when I had to revert to Ramen to save up money fast! Yet we often view saving money as something to do “when I need it.”
Here’s the problem – you don’t always know if or when you’ll need it, until you need it.
You know what your current financial needs are. And you probably know what some of your future financial needs will be (Like my plane ticket snafu).
But you can’t predict all of your future financial needs. And let’s be honest, sometimes it’s hard to stay motivated to save money. As a result, it’s crucial to learn how to grow your savings account automatically. Here’s how I did it.
How to Grow Your Savings Account Automatically
How to grow your savings account automatically? Depending on your current financial situation, it will probably be fairly easy. Before we can start 10x’ing your savings, you’ll need a few basic financial tools:
- Checking account
- Savings account
- Online banking with automatic transfer capabilities
I’m going to focus today on using recurring automatic funds transfers to automate savings each payday. What’s so great about automatic transfers? Here are just a few benefits:
- They allow you to save on autopilot. Once you’ve decided how much to save, your automatic transfers will save your money for you, meaning you don’t have to remember to put money away each payday. One of the keys to increasing savings is to save consistently, and automatic transfers help you do just that.
- They help you keep your financial priorities straight. Gone are the days of deciding to BOGO at Zappos instead of putting that money in savings. Once you decide how much to save and when, your automatic transfers will make sure it happens until you say “stop.”
- They make monthly budgeting and bill paying easier. Since the money is transferred to your savings account automatically, that’s 1 less thing you need to do on budget and bill pay day.
Step 1: Create a Budget, if You Haven’t Already
The first step in how to grow your savings account automatically is to create a budget, if you don’t have one already.
Why a Budget? I Thought This Was About Growing Savings…
Why do you need a budget first? Because without a budget, you don’t know how much you can afford to save from each paycheck.
If you start saving money without knowing how much you can afford to save, you may save too much or too little. As a result, you may have to pull money out of savings to cover bills (Not a fun cycle to be stuck in). Or, you may not be saving as much money as you could, which means your savings account will grow more slowly.
Savings Budgeting Tips
I’m not going to cover how to create a budget in this post, but I do have a few tips for planning savings into your budget. I also linked to some resources below if you need help getting started with budgeting.
- As you create your budget, keep in mind all the different things you want to save for. An emergency fund? A down payment on a new house? A kitchen renovation? A vacation?
- Speaking of emergency funds, You definitely need one in your savings repertoire. Your emergency fund will help protect your other savings when urgent, unexpected expenses arise. Check out Dave Ramsey’s quick guide to emergency funds for more info.
- If you’re serious about growing your savings, aim to save at least 20% of your monthly income. If your current expenses won’t allow for that, work towards it by paying off debt and reducing your expenses.
- Once you know how much money you can afford to save each month, prioritize your savings goals (Emergency fund, vacation, etc) based on how soon you need to have the money saved, and how important the goal is to your financial health. Hint – emergency fund should probably be first!
- Divide the total amount you can afford to save among your savings goals, in order of priority. This is how much you will save per month toward each goal.
Budgeting Resources
Budgeting is another post entirely, but there are some great resources for how to get started budgeting.
- Rosemarie at The Busy Budgeter has a detailed post on how to create a budget.
- Lena at What Mommy Does has a quicker budget tutorial and a free monthly budget spreadsheet, too.
Step 2: Decide Where Your Savings Will Go
You probably already have a savings account set up. Woo hoo! For the next step in how to grow your savings account automatically, let’s dive a bit deeper into your money’s destination.
Single or Multiple Savings Accounts?
If you’re like most people, you’re probably saving for more than 1 thing at a time. A car, a new couch, college, for the kids, retirement, etc.
You’ll need to decide if you want to keep all of your savings in a single account, or open separate accounts for each type of savings. Money Crashers has a great article that gives the pros and cons of having multiple savings accounts.
Personally, I have multiple savings accounts set up for specific categories, such as emergency funds, travel, general savings, retirement, etc.
Yes, I’m missing out on some interest by having multiple accounts, but it’s worth it to me. I like to know exactly how much I have saved for each item, and that I won’t accidentally spend money earmarked for another category if it’s all in the same account.
Choose the savings account scenario that best fits your needs, and let’s move on to step 3.
Step 3: Setup Recurring Automatic Transfers
Okay, now we’re to the money moving part! The key to how to grow your savings account automatically? Recurring automatic funds transfers.
Remember the budget step above? You determined your savings goals, listed them in order of priority, and assigned an amount to save toward each goal each month. We’re going to create a recurring automatic transfer for each amount, based on when you get paid.
The number of recurring automatic transfers you create will depend on whether you decided to use a single savings account for all your savings goals, or multiple accounts for different goals.
When Should Automatic Transfers Occur?
An important note – I like to set my recurring automatic transfers to occur a few days after my paycheck is usually direct-deposited. So if I usually get paid on Thursday, I’ll setup my transfers for Friday or Monday.
This allows for any minor delays in receiving your deposit, such as due to a bank holiday, etc. It also allows time to ensure the paycheck is credited to your account before the money is transferred out.
Single Savings Account
If you chose to use a single savings account, you’ll have just 1 recurring automatic transfer per paycheck. The transfer amount will be to total amount you determined you could afford to save, divided by the number of paychecks you typically receive per month.
If you are paid biweekly (Every 2 weeks), you’d divide your monthly savings goal by 2, and setup a recurring automatic transfer for that amount every 2 weeks. If you’re paid monthly, you’ll setup a single automatic transfer for your total monthly savings amount.
Let’s look at a quick example. Say you’re paid biweekly on Fridays, and you can afford to save a total of $500 per month, which you’re saving in a single savings account. You’ll setup a recurring automatic funds transfer for $250 every other Monday, starting with the first Monday after you get paid. Your recurring automatic funds transfers will chuck $250 from each paycheck into your savings account, and voila – you’re growing your savings automatically.
Multiple Savings Accounts
If you chose to use multiple savings accounts, you’ll follow the same steps as above, except you’ll create an individual automatic funds transfer for each savings account.
Let’s look at another example. Say again you’re paid biweekly on Fridays, and can afford to save $500 per month. You’ve divided your $500 among your savings goals as follows:
- $200 per month – emergency fund
- $150 per month – vacation fund
- $100 per month – new car
- $50 per month – new laptop
You’ll divide each of those individual savings amounts by 2, and setup recurring automatic transfers into the corresponding accounts. Your automatic transfers would be:
- $100 every other Monday – emergency fund
- $75 every other Monday – vacation fund
- $50 every other Monday – new car
- $25 every other Monday – household goods fund (For that shiny new laptop)
See how those still total up to $250 every other Monday, and $500 per month total? You’re still saving the same amount each paycheck, you’re just being more specific about where you want that money to go.
Step 3: Leave the Money Alone
A big part of how to grow your savings account automatically (Or accounts, if you have multiple) is to leave the money alone. As in, don’t touch your saved money until you’re ready to use it for its intended purpose.
This is why we setup a budget and discussed an emergency fund in step 1. Your savings will never grow if you repeatedly pull money out of savings to cover bills, unexpected expenses, or all the stuff you want from the J.Crew clearance sale (Guilty).
If it’s not in your budget, and it’s not an urgent and necessary expense, don’t spend money on it. And DON’T pull money out of savings to pay for it! You already decided what to use that money for. Show yourself respect by honoring your own financial wishes.
How to Grow Your Savings Account Automatically: Conclusion
Growing your savings on autopilot is surprisingly simple. By telling your money where to go each paycheck, you’ll increase your savings each month without lifting a finger. Here’s a rundown of how to grow your savings account automatically:
- Create a budget to determine how much you can afford to save per month
- Establish an emergency fund to cover unexpected expenses and protect your savings
- Decide how much you’ll save each month toward each savings goal
- Determine whether a single savings account or multiple savings accounts are best for you
- Setup recurring automatic funds transfers to occur a few days after every paycheck
- Don’t touch your savings until you’re ready to use it for its intended purpose
I hope I’ve given you a good understanding of how to grow your savings account automatically. Using recurring automatic funds transfers is a great way to reach your savings goals without even thinking about it every payday.
Do you use automatic transfers? How do you put money into savings each month? Let me know in the comments below!