Automate Your Savings: The Key to Financial Security

Could it help you get your finances on track too?

A little over a decade ago, I made an important choice that improved my financial health.

It let me get a nice start on my retirement nest egg. It also ensured I have savings for emergencies, vacations, big purchases, home repairs, new cars, and a host of other financial obligations.

This choice has shaped my financial life

The decision I made? I opted to automate my savings. It was a simple choice, but the impact has been more profound than I could ever have imagined.

After several years of trying to save for various goals, I found I consistently fell short -- even though I'd budgeted to put money away. When funds were deposited into my bank account, I had the best of intentions to use the money wisely. But things always seemed to come up and I never ended up with the cash I'd planned to save.

I was frustrated that my savings never seemed to grow. So I took the decision away from myself. I sat down and identified all my savings goals and how much I'd need to put aside. Then I set up automated transfers on the days when my paycheck hit my bank account.

Rather than having to move the money over myself, part of my paycheck was immediately diverted the day after it arrived. Part went into a retirement account, and some went into dedicated savings accounts I'd set up for different goals. Anything left over was mine to spend, because the money had gone to the right places first.

Here's why this decision was such a great one

The obvious benefit to automating my savings was that I never short-changed myself.

I've contributed to my investment account and other savings accounts every month in the decade since I set it up. I haven't missed a single month. It would be a major hassle if I wanted to -- I'd have to sign into my account ahead of schedule to stop the payment.

But there are plenty of other benefits too. I know the money in my account isn't earmarked for savings. So I can actually spend it without any guilt or worries I'm undermining my long-term financial goals.

I'm also more careful about frivolous spending since the money that's left needs to last. The only debt I'm comfortable taking on is a mortgage loan. That means I have to live on whatever remains after I've accomplished my savings goals.

Could automating your savings work for you?

I'm a big proponent of automating savings since it's worked so well for me. The one caveat is this: You need to make sure you have enough money left over in your account to cover the necessities. You don't want to overdraft your account or have to rely on credit cards to cover groceries because you moved too much money into savings.

The trick is to make a realistic budget that takes your savings goals into account. That way, the simple technique of automating your contributions could help you achieve the same financial success I did.