Saving

A simply way to save more is to automate your savings. In this step-by-step guide, we show you how to put saving money on auto-pilot.

Recently, I’ve been doing a lot of reading about the power of habits. Books like The Power of Habit and Making Habits, Breaking Habits have given me insight into how habits work. They’ve pointed out that the vast majority of actions we take on a daily basis are habitual.

When was the last time you consciously thought about driving to work? Brushing your teeth? Eating lunch? Walking up or down stairs? Kissing your kids goodbye before school?

These actions are all habits. And that’s a good thing. Without habits, we’d have to expend way too much mental energy thinking about the things we have to do every day. Habits free us up to put our time and energy into more important pursuits, like succeeding at work or finding new solutions to old problems.

All this talk about habits has made me realize the importance of habit in finances, as well. You probably already have lots of good, and probably some bad, financial habits. You may follow a particular routine for paying your bills and tracking your budget. Or maybe you have a habit of clipping coupons before you grocery shop, or shopping around for the cheapest airfare before you travel.

But one of the most important financial habits is that of saving. Without saving money, you simply can’t get ahead financially. Luckily, creating new savings habits is actually much easier than creating new diet or exercise habits. That’s because it’s really simple to automate your savings. Automating your savings becomes a habit as soon as you set up the automation and leave it alone. And you’ll reap the benefits for as long as you leave the automation in place.

So how can you automate your savings? Here are five ways to build this financial habit.

1. Use separate accounts

If you don’t already have at least one separate savings account from your checking account, what are you waiting for? There are too many low-fee and no-fee options available today to keep all of your money in one place. And, in fact, I’d recommend setting up at least four separate savings accounts. Here’s what you should have:

1. A retirement account. Of course, you should be saving for retirement. This is best done through a 401(k) if your employer offers one. If they don’t, or if you’re self-employed, set up an IRA without delay. Then, start saving for retirement in this tax-advantaged account.
2. A short-term savings account. This account should be for expenses that you know are coming within the next year or possibly two years. It depends on your definition of short term, really. That’s a personal preference. But either way, you should have an account like this to save for specific upcoming expenses. This account can be attached to your checking account, and you may find that it’s fairly fluid.
3. A long-term savings account. You’ll also likely have longer-term savings goals you want to meet. There might include taking a fabulous vacation to Europe, paying cash for a new car, or putting a down payment on a home. This account should be separated from your checking account, and you should look to get a better yield on this type of savings.
4. Emergency savings. We’ve talked elsewhere about having a comprehensive emergency plan, rather than just an emergency fund. But an emergency fund is part of that plan. This should definitely be separated from your checking account. You might even consider a CD ladder strategy for this type of savings.

Separating out your finances to this degree might seem ridiculous. But it will help you keep track of how well you’re saving. And it’s essential to automating different types of saving.

2. Set up your direct deposit

The first thing you should do is follow the old adage to pay yourself first. Luckily, this is easy for most people who have direct deposit through their workplaces. Most employers will split your paycheck at least two ways, if not more, on payday. You’re not at a high risk of spending money that never sees the inside of your checking account. So if you can take this option, do.

Just be sure that you carefully calculate your savings with this option. Look at your retirement funding first, and put at least enough into your retirement account to get any matching funds that are available from your employer. Typically, retirement funds won’t count towards your employer’s limits on the number of accounts you can use for direct deposit.

Next, if your emergency fund isn’t up to snuff, send part of your paycheck there. Once that’s funded, you can redirect your emergency savings to your long-term savings. Speaking of which, make long-term savings your next direct deposit goal. If you can, add short-term savings, as well. But if this is too many accounts, just split your paycheck three ways.

Typically, you can set up these direct deposits based on the percentage of your paycheck or a set dollar amount. A percentage-based amount can be a bit safer if your paycheck is at all variable. But if you’re a salaried employee, directing a set amount of cash to each account can make sense.

3. Set up automatic transfers

What if you can’t split up your paycheck in as many sections as you’d like? In this case, you can set up automatic transfers. Your bank will automatically route money from checking to savings on a particular day of the month, if you choose. This is a good way to continue paying yourself first, even if you run out of paycheck-splitting options through your workplace.

4. Set up other savings rules

You can set up other savings rules to help you continue to automate your savings, as well. For instance, you might transfer $10 into your savings account every time you go grocery shopping. Or you could make it a habit to transfer money to savings each time you go out to eat, buy your favorite expensive coffee drink, or spend money on new clothes. With these types of habits, you’re basically “taxing” your own behavior so that you save automatically based on things you do every day anyway.

You can also use an app to further automate your savings based on rules like these. For instance, the app/banking solution Qapital lets you set up specific savings rules. then it transfers money according to these rules. Or you could use Digit, an app that analyzes your cash flow and saves money for you automatically.

5. Keep track of your progress

Finally, it’s essential that you keep track of your progress and constantly re-evaluate why you’re saving and how you’re working towards your rules. Keep tabs on your savings account balances, and keep thinking about how those play into your goals. Then, change your automated savings as you need to. This might mean changing your direct deposit amounts, boosting your automatic bank transfers, or changing your behavior-based savings rules.

You’ll be surprised at how quickly you’ll make progress with your savings goals once you start automating your savings.

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50 Ways to build an emergency fund. Tips, tricks and strategies on saving more for emergencies and where to keep your rainy day money.

There’s a reason Dave Ramsey’s famous Baby Step #1 is to build an emergency fund. It helps people get on track for becoming financially independent.

I don’t agree with everything Ramsey says. But having at least a small emergency fund to begin with can be helpful. A basic emergency fund is a place where you keep cash for true emergencies, such as job loss or a broken-down car that would prevent you from going to work.

Ultimately, you’ll want enough cash in your emergency fund to cover all of your necessary expenses for a 3 to 6 month period. But any amount of money saved is a start.

Beyond the basics, I suggest at least five separate components to a complete emergency plan. Getting to that point presents challenges for many people. When you’re starting out, it can be difficult to assemble even the basics for eventual financial freedom.

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But even if you’re hard-pressed for cash, you can still start an emergency fund. Here are fifty different ways to start saving today:

1. Open a high-yield online savings account with as little as one dollar. This gives you somewhere to put your emergency funds, which is essential. And you might as well protect against inflation while you’re at it.
2. Sign up for direct deposit. When you do, have part of your paycheck–as little as a few bucks–deposited right into your new online savings account. If you don’t know where to begin, 5% of your paycheck is a great start. You won’t spend it if it doesn’t hit your checking account in the first place!
3. Empty your pocket change into a jar every night. Then, put the change into your savings account every couple of months. Don’t spend much in cash? Try an app like Acorns that automatically rounds up your transactions to save your virtual change for you.
4. Add to your jar every time you swear. Trying to break a bad habit? Tax yourself every time you do it. You’ll break your habit more quickly and save money while you’re at it.
5. Have a garage sale. Selling off things you no longer want or need can get you started on the road to saving. Plus, it’s nice to de-clutter the house once in a while!
6. Sell on Craigslist or Facebook groups. Bigger-ticket items may net a better price sold individually on Craigslist or your local Facebook garage sale group.
7. Whenever you purchase groceries with a coupon, deposit your savings into the bank. This works especially well if you aren’t already in the habit of using coupons. Whenever you cut a few bucks off of your typical grocery bill, save the extra. You’ll never even miss it.
8. Downgrade your cell phone or cable service. The best ways to save are options that let you keep saving money, month after month. Just be sure you put the money saved into your emergency fund every month!
9. Bring your own lunch to the office. Say you typically spend $10 for lunch at work, but you can make a salad at home for $2.50. Every day you bring your lunch to work, put $7.50 into your emergency fund.
10. Ask for a raise. Pull together your work performance stats for the past year or two. Then, get together with your supervisor, and lobby for a raise.
11. Save your raise. If you do get a raise, don’t let lifestyle inflation eat it all up. Instead, have it automatically deposited to your savings account rather than your checking account.
12. Drink soda rather than alcohol when you’re dining out. Buying even one drink at dinner can set you back $5 or more. Every time you downgrade your drink, throw the money you’ve saved into your emergency fund.
13. Switch to store-brand food items. Get a feel for how much this cuts from your weekly grocery budget. Then save the extra cash.
14. Switch to generic medication. Many times, doctors don’t mention generics, but you can switch to them if you ask. Again, keep track of how much you’ve saved, and add it to your bank account.
15. Cut back or eliminate your addiction to smoking. Smoking has up-front costs, of course. But you’ll also save money on healthcare over time if you quit.
16. Be aware of your ECRD Factor. What are you spending money on that you could eliminate or cut back on? Find those areas, and then leverage them to save more money.
17. Start a side gig. Whatever your side gig, put any profit from it directly into your savings account.
18. Use a cash back rewards credit card. Instead of putting the rewards towards extra spending, put them into your savings account.
19. Save gas by not driving faster than 65 miles per hour. You can also save gas and be easier on your car by not braking too hard and by following other safe driving practices.
20. Stop using credit cards if you pay interest. If you have trouble not carrying a balance, just stop using your credit cards.
21. Cancel your Netflix subscription. Actually, look at all of the subscriptions you’re charged for monthly or annually–Netflix, Hulu, Amazon Prime, Spotify, etc. If you don’t use them enough to justify the costs, just cancel them.
22. Do your own yard work. If you’re currently paying someone to do your yard work, start doing it yourself. You’ll get a workout and save some money.
23. Visit the library rather than your local bookstore. Bookstores are great. But you can save so much money on reading material by renting it from the local library!
24. Stock up on non-perishable groceries when they are on sale. Having a well-stocked pantry is essential to keeping your grocery spending lean. Get familiar with your local stores’ sales cycles, and stock up when you can.
25. Cancel magazine subscriptions. If you have some must-read magazines, subscribing is better than paying more at the newsstand. But if you’re not reading those magazines cover to cover every month, cancel them.
26. Reuse or repair things instead of replacing them. Then, take the money that you saved by not purchasing new, and put it into your savings account.
27. Delay vacations until your emergency fund is complete. This is a tough one. But you should have at least some part of your emergency fund saved before leaving on vacation.
28. Sign up for online bill payment if your bank offers the service for free. This will keep you from missing bills and paying late fees.
29. Shop around to ensure all your your financial accounts do not charge you extraneous fees. In this day and age, you shouldn’t pay for the privilege of using a checking or savings account!
30. Always know how much you have in the bank so your accounts will never be overdrawn. Money management and budgeting apps are a great option for helping your manage this.
31. Use public transportation rather than driving when possible. Alternatively, consider biking to work.
32. Work a few extra hours at your day job. If you’re paid hourly, you can earn extra to put into savings. If you’re salaried, impressing the bosses could net you a raise sooner rather than later.
33. Call your insurance provider and ask for an updated quote. In face, you should shop around for insurance once a year. You never know when you’ll get a better offer!
34. Crawl the web for abandoned and unclaimed property owed to you. You never know what you’ll find. Put any unclaimed cash straight into savings.
35. If you travel, join AAA; the discounts will often pay for the membership fee.
36. Cancel your gym membership. You can get a great workout at home with some free weights. And you can always get your cardio in by walking or running outdoors.
37. Consider refinancing your mortgage. If you haven’t taken advantage of low interest rates, now is the time. You could save hundreds per month, depending on your circumstances.
38. Cook and brew coffee at home. Cutting out a latte a day may not make you a millionaire. But cooking and brewing your coffee at home can save you a few bucks a day.
39. Find opportunities for one-time income. Don’t have time for an ongoing side gig? Consider doing one-time income-earning opportunities like babysitting or house sitting.
40. Check out your memberships. Are you a member of a professional club you don’t get much use out of? A local country club? Consider cutting out memberships that don’t really benefit you.
41. Save your tax refund. In fact, you can have your tax refund direct deposited to your savings account.
42. Adjust your withholding. Don’t want to wait until tax time to beef up your emergency fund? If you always get a refund, you could be having too much withheld from your paycheck. Talk to your HR department about adjusting your withholding. Then, put that extra cash from your paycheck right to your emergency fund.
43. Stop eating out. Commit to only eating out for truly special occasions, such as birthdays. You’ll be surprised how much this could save over the course of a year.
44. Consider a no-spend month. This Pinteresty trend is actually a great way to save money. You basically eliminate all but your essential spending for a full month. It can be an eye opening way to cut unnecessary spending long-term, too.
45. Keep track of all of your spending. Sometimes you spend money without actually realizing it. Keeping track of all your spending, either with an app or by writing it all down, can help you pinpoint where you’re over-spending.
46. Negotiate on everything. Whether it’s a retail store or your cable company, pretty much everything is negotiable.
47. Share your home. Getting a roommate can really boost your savings. Or you can use Airbnb or VRBO to rent part or all of your house part-time.
48. Save on energy. Take steps to make your home more energy efficient, and it’ll save you money month after month.
49. Shop secondhand. Sometimes, you just have to buy stuff, whether it’s new cups to replace the ones your kids broke or a new pair of jeans. But these things don’t have to be brand new. Try shopping at online secondhand stores or your local Goodwill to save some serious cash.
50. Continue making “car payments” to your savings. Once you make your last car payment, start transferring the same amount to a designated savings account. For example, if you’ve been paying $300 a month for the past five years for your car, rather than increasing your spending once you’ve paid off the balance of the loan, start depositing a monthly $300 into a high-yield savings account.

Saving three to six months’ worth of expenses can take a while. So set some milestones–like your first $500 or $1,000–worth celebrating. (Just don’t blow a bunch of money on a fancy dinner out while you’re at it!)

With a goal to be financially independent, the first step is securing a cash cushion, accessible in emergencies. During this funding phase, it may be beneficial to make sacrifices that in other situations you would not make. A slight decrease in quality of life in the short term will likely outweigh long-term financial devastation when a future emergency arises.

Original published on April 14, 2008, this article was updated by the Consumerism Commentary editorial team (five of us to be precise) on November 15, 2017.

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