How to Automate Your Savings

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Last updated on July 13, 2021 Comments: 8

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.

Easier said than done? Not necessarily. You can use an app to further automate your savings based on rules like these and even more. Empower shows you how easy it can be. Empower is an app that intelligently helps you save automatically. Just tell Empower your weekly savings target and then the feature analyzes your income and spending to detect when you have excess cash and will automatically set that money aside as savings. Read more about Empower capabilities in our full Empower Review.

Empower is a financial technology company, not a bank. Banking services provided by nbkc bank, Member FDIC.

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.

Article comments

Steve says:

These are all great ways to automate savings. I always recommend setting up direct transfers. Also, automating your retirement savings is one of the best things you can do. You set it and forget it, but that money just keeps growing.

Joey Mack says:

Great article. I’m an avid saver myself and tend to watch what I buy. To help me see if something is worth buying, I use a site called to calculate how many hours I have to work to buy something. This helps you determine if something is worth the time you’ve work to purchase it.

Bela says:

I do some automated savings, recently expanding on it. I have a credit union account into which I added $200 monthly automatically, for the purpose of medical expenses. Then the ACA and penalties happened, and I transformed that account into a “taxes” account, having neither medical insurance nor a medical savings account. Incidentally, I do not have accounts named or designated by other than myself, so a medical savings account is not an HSA, and our retirement funds are not in an account so named by a financial institution.

I got refunded our ACA penalty by doing an amended tax return, put that in the credit union account and then transferred the year’s savings to a Capital One account where it can earn some interest. And I like the relatively high interest rate there so much that I created another automation from my primary checking account into Capital One monthly.

Anonymous says:

I believe there are investment vehicles with some sort of life insurance element to achieve similar results. You deposit an agreed amount every month and they invest the money for you conservatively. generally the return is much better than the interest rate you would receive for your saving account. I think the term is called endowment. These investment vehicles may be solve the problem of regular access to your cash in the bank. And if you really need the money these policies can be sold for cash as well.

Anonymous says:

We are strong believers in the automatic savings. We think that the only real way to overcome the Endowment Effect ( is to save money automatically, in small increments and often. And this is exactly how SavedPlus is designed.
Daniel, thank you for the analogy with the personal sales-tax. Pay yourself first!

Anonymous says:

SavedPlus seems like an interesting idea. I was introduced to the 100% personal tax a little while ago, where all discretionary spending is matched with a transfer from checking to savings. You could probably tweak SavedPlus to do something similar for you so that it’s a more passive way to save.

Donna Freedman says:

I’ve got Capital One 360 as well, and really love the automatic savings aspect: out of sight, out of mind.
Additionally I’ve set up three sub-accounts. Although these are not automatically funded, I appreciate the convenience factor:
1. New Car Fund: We’re a one-car household. Every month my partner lets me know how much he spent on gas and I put one-half that amount into the new car fund. I also put my share of the insurance in there.
2. and 3. Nephews Fund. I put a few dollars ($10 minimum) a month in each one, for their eventual education. Sometimes when I want to buy them some treat or item that they don’t really need I add that amount to their deposits. They don’t have to have another toy or T-shirt — regardless of how cute! — but eventually they will need to go to college or trade school. While the accounts won’t be a lot of money, they will help with incidentals.
Best-case scenario: My income evens out enough in 2014 that I can do automatic withdrawals for the kids’ funds. Maybe for the car, too, based on how much we generally spend on gasoline.

Anonymous says:

I’m self employed and I sweep every penny beyond immediate needs into a savings account, If I want to spend anything outside my budget I have to remove it from savings and that gives me time to think about it. I have some specifics items I am saving for, so I put as much in those accounts as possible. It seems that I won’t take money away from specific items the way I will a general savings account.