The idea is to save without thinking about it. To start, arrange for your paycheck to be directly deposited into your bank account, if possible. Then, with each paycheck, pay yourself first by directing a dollar amount or percentage of your paycheck to be directly and automatically deposited into a savings account. This strategy can also be applied to retirement investment plans.
Here are some reasons to try it:
- By automating our savings, we take the thought out of it, and some may argue, the pain. Automatic savings works because it gets past our tendencies as humans to procrastinate and do nothing.
- It addresses our lack self-control; we know we should save money, but we end up spending it on temptations and things that bring us pleasure.
- Finally, many of us have difficulty considering the future. Our minds are occupied with the present, making it difficult for us to prioritize what we might need tomorrow over what we want right now. When we automate our savings, our focus on the present is no longer a problem.
It might not be a strategy for everyone; for example, individuals with unpredictable income should be cautious. However, there is strong evidence that people who commit to saving automatically tend to save more.
Automatic savings is simple tool that can make a difference in our ability to save money. Why not put your savings on auto-pilot?