4 Benefits of Automating Savings
Benefits of Automating Savings
We live in a time where there are multiple demands in our schedule with work, family, social gatherings, and other activities. Staying on top of things financially can be challenging because it’s one more task to monitor. If we are looking to save time on a task, we automate it. There are multiple services that allow us to do so in this day and age. In this age of automation and saving time, why not do the same with your investments and savings goals? If you contribute to an employer retirement, the automation is done for you. Why not apply that same strategy in your personal finances? Let’s walk through the benefits of why I advocate to automate your savings.
Setting up automation with your savings functions much like automatic bill pay for your mortgage/rent, utilities, subscriptions, etc. Automating saves the three steps you must take with one-time transfers and allows you to set it and forget it. Whether it’s your personal savings account for a short-term goal, investment account, or IRA, your banking or investment institution should allow for recurring transfers of the set amount you want to save. With these recurring transfers in place, you can focus on your most important tasks and not to have to worry whether you are achieving your targeted savings rate each month.
The power of compounding interest is the benefit that happens in the background while automating your savings. Simply put, compound interest is the interest you earn on interest. Compound interest potentially keeps building value in your assets as you stay invested over the long term. Compound interest can also potentially keep building and function optimally as you add consistent, systematic investments where the goal is to generate a desirable return. Add the two things together of automated savings contributions and staying invested, compound interest has the ability to work over the long term and add future value to your savings.
Builds Healthy Behavior
The behavior automating savings creates is perhaps the greatest one. Fostering this behavior is especially important in the years of accumulation. Automating savings creates a consistent, mental shift towards always putting an amount away for the future. The amount you direct for those systematic transfers does not have to be large, it can be small. No matter the amount, it teaches the habit of consistently putting an amount away for the future. Everyone eventually reaches the day of financial independence or retirement and income goes away. The savings you have built determine the lifestyle you are able to maintain. That future lifestyle can be dictated by the behavior you created today.
Once you have automated your savings and paid your bills, it gives you the freedom to spend freely. Since you have taken care of your financial commitments to stay on track, the remainder of each month can be spent on the items and experiences that bring fulfillment to your life. This can provide some confidence in a chaotic world.