Updated: Aug 21, 2019
Let automatic savings and financial apps help build your wealth seamlessly.
By: Allan R Kirby
I am a fan of automatic savings because life can get very busy with work and family. As a result, it can be hard to keep a disciplined approach to savings all the time. With automatic savings, however, there is little effort on your part. It’s like putting a car on cruise control, you still have to keep an eye on what is happening but you do not need to worry about the speed in which your savings will build. You have already set that, but you can adjust the amounts at any time when you feel it’s necessary. Take it one step further. You can eventually move the money you have saved and put it into low cost ETFs, which means your money will grow much faster over time.
“Automatic savings and investing can help build wealth and help meet your financial goals with very little effort.”
My experience over the last number of years has shown me that automatic savings allows someone to maintain a disciplined approach without having to do all the work. It can be difficult at times to manually move money regularly, since you need to be disciplined 100% of the time. However, setting up an automatic transfer from a chequing to a savings account and putting a small amount of money away will actually help you build up a nice amount of savings over time. For example, I set up an automatic savings from my chequing account to my savings account from another bank. The plan was to build up a small emergency fund, so the amount I decided to put away was just $25 a week. I did this for a few months and then adjusted to $35 and guess what, after just a few years I had accumulated a sizable amount for my emergency fund, over $6000.
The key to my success was first treating the $25 transfer as if it was a deduction to my pay. Secondly, I always made sure one of the transfers was made the day I received my pay. The amount was small but I realized rather quickly I did not miss the money and I did not really have to do much to adjust my spending because the amount was not significant. Later on when I increased the transfer amount by $10 a week, my savings really began to build, because although $10 might seem small, it was actually a 40% increase in the amount I was transferring.
“Find the right balance for you when you start to save.”
What the experts say
I have reviewed expert advice. When it comes to the subject of savings and the amount you should save as a percentage of income could vary. In fact it can be as high as 20% of your pay, however, the reality is that many people cannot save that much of their pay, and even if they could, it would likely mean big changes that people are not willing to take. I take a more pragmatic approach, I always suggest to start off slowly and see what you’re comfortable with and then build from there. Some people might be able to jump in and put large sums of money away while others will struggle and for these people, cutting expenses may not be an option. This is especially true when you go from being single to having a family. Your perspective and priorities on household finances changes; you cannot save if you need to pay for daycare or you need to pay an unforeseen dental bill for your kids.
But regardless of where you are in life, automating your savings and transferring money into a separate account will help you build up a small sum of money to help you meet your financial goals. Additionally, although I have highlighted savings you can apply, the same principles work for your retirement accounts as well, which I have also done. In my case, I only do a small amount weekly and I consider it to be a nice extra retirement account to help augment my main retirement savings. I should also highlight the idea that as you build your savings up and depending on what it’s to be used for, you should think about investments. This is something that I realized when I had built a sizable amount in my savings. I found I was only getting 0.65% interest rate so I learned I need to invest some of my money to help build my growth.
“Micro Investing - One of the best ways for people who want to save and build wealth .”
Although not for everyone, one way to save and build your money over time is using micro savings and investing applications that allow users to save small sums of money and invest into low cost ETFs. It’s a great product that removes many barriers to investing such setting up a brokerage/trading account with no minimums or high service charges found with banks. Micro investing through these apps is simple, painless and it allows you to automate your savings and investments seamlessly. It’s very simple to set up, you just download the app, set up an account and connect a debit card to the micro account. The micro investing app will then round up your purchases to the dollar and put that money into your account for savings or investing into ETFs. You can also set up automatic transfers as well, so between the two you can build up a nice sum of money in a short period of time.
Life gets in the way and it can be hard to save money and build your wealth up, however through automatic savings between bank accounts or using new micro savings platforms you can slowly build up your savings a few dollars at a time. Remember you need to do what is best for yourself and taking a slow and deliberate approach may be a way to ensure you do not get overwhelmed and stressed.
This is a MySmallBank.com blog written by Allan Kirby, who writes and produces Personal Finance articles and videos.