According to some recent studies, under 40% of Americans have enough savings to pay for a $500 or $1,000 emergency. And about a quarter of Canadians surveyed have “hardly anything set aside”. While our ability to save money is based on numerous factors, I think a lot of it comes down to habit. We get used to a certain income, lifestyle, and spending behaviour and live within this cycle every month.
But what if we could interrupt the cycle and create a new one? By putting systems and automations in place, I truly believe we have the power to reshape our financial lives and can begin to save money automatically. Here are a few ways to do this.
First, a Word on Paying Yourself First
One of the greatest gifts I ever received was a copy of The Wealthy Barber. It’s a must-read for anyone seeking financial freedom, and it was the perfect guidance when starting my first full-time job.
While the book is full of money advice, the single most compelling part for me was the concept of paying yourself first. After receiving your paycheque, put aside a set amount (the book recommends at least 15%) to go towards your savings. The book shares more details on how to invest this and what to put it towards.
By taking your savings out immediately, you’re making saving money a regular habit. You’re also learning to live on a smaller income.
With this concept in mind, here are some ways to automate this practice.
Use a Continuous Savings Plan
Setting up a continuous savings plan (CSP) is one of the best steps you can take towards financial freedom. While the specifics may vary between banks, a continuous savings plan involves the bank transferring a specific dollar amount on a set schedule to a specific savings account. For example, you can set it up so that every pay day, the bank automatically transfers a certain amount of this deposit to a savings or investment account.
This automation means you’re saving money continuously, without having to even think about it.
The beauty of a CSP is that you can change it over time. Have a vacation coming up? Increase your contributions to cover the cost. Changing your financial goals? Have your deposits transferred to a different account or investment vehicle.
You can also make lump sum contributions to the savings account associated with your CSP, like when you get your tax refund for example.
Get Creative With Direct Deposit
Another way to automate savings is to set up a system where a portion of your earnings goes straight to a savings account. You can do this a few different ways.
Use multiple accounts for one paycheque
If your employer allows it, you can automatically divert a portion of income into a different account. This way, you can set up, say, 15% of your paycheque to be deposited into a savings account. Or, you can have your year-end bonus deposited into an investment account. Having these extra funds out of sight and out of mind can work wonders in this case.
Use different accounts for different income streams
If you have multiple streams of income (which I highly suggest!), you can have the income from one or more source deposit directly into a savings account. As I shared in my entrepreneurial story, when I opened my Etsy shop, I put 100% of my income into a separate bank account that I didn’t touch. If you have a second job or stream of income, consider doing the same. And check out my post on how to earn extra money from home if you’re looking for side hustle ideas and inspiration.
Take Advantage of Employer Savings Programs
Depending on where you work, your employer may offer some sort of stock ownership, group RRSP, or similar program. These often involve allocating a percentage of your paycheque to be automatically invested in the program. These funds are taken off the top of your paycheque, so again, you’re paying yourself first and automating the process.
Some employers even offer matching programs. Let’s say, for example, that you contribute 5% of your bi-weekly pay to an employer stock ownership program and your employer matches up to 3%. Every paycheque, you’ll be investing 5% of your income into the program and they’ll be contributing another 3%. Your employer’s contribution is pretty much free money!
Reducing our spending and living on a smaller income isn’t always easy. But by making the most of systems and automations, we can make saving money a habit. And that’s something that will set us up for greater prosperity in the future.
Have you found other ways and hacks to save money automatically? Leave us a comment and let us know!