January 8, 2016 in Savings

Have no willpower? 4 tips to build savings anyway

If you crave the security of a savings account but find that cash burns a hole in your pocket, the solution could involve a bit of sleight of hand. Automatically diverting funds from your paycheck to a savings account means you’ll be putting money away before you have the opportunity to spend it.

“Both because you don’t have to think about it and because (the pay redirected to savings) is out of sight and out of mind, it is probably a good idea for many people,” says George Loewenstein, professor of economics and psychology at Carnegie Mellon University.

Looking for another way to put your savings on autopilot? Try these ideas on for size.

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Tracking everything you spend money on for a month or two can give you an idea of the wiggle room in your budget for savings.

“Before people turn on the switch, they need to think about whether they can forgo any income,” Loewenstein says.

But look hard. Three to 6 months’ worth of living expenses is typically what’s advised for an emergency fund, says Howard Sorkin, a CFP professional in Park Ridge, Illinois. Aim for higher rather than smaller reserves if you anticipate a need, such as an impending layoff.



The term “paycheck” is a misnomer these days. Studies show the majority of workers don’t receive a paper check but get their pay electronically deposited into a checking or savings account, says Bill Dunn, director of government relations for the American Payroll Association.

Whether they pay via direct deposit or prepaid card, employers often will agree to a request that a portion be dropped into a savings account. Ask your company’s payroll manager to find out what’s feasible, Dunn says.



If your employer can’t deposit part of your pay into savings, your financial institution probably can move money into savings for you.

For instance, many banks will let you schedule periodic deposits from checking to your savings account or an individual retirement account. Set it and forget it.

You’ll want emergency savings to be liquid, meaning you can withdraw funds without penalty if you need them, says Carol Friedhoff, a CFP professional in Tucson, Arizona. A plain vanilla savings account would serve the purpose.



In addition to the traditional savings account, another option is a money market account, says Michelle Dosher, managing editor for consumer education at the Credit Union National Association.

“Some money market accounts have a limited number of withdrawals allowed monthly,” she says. It’s a good feature for those who fear they’ll raid reserves for impulse buys.

Asking that a debit card not be linked to the account might protect the fund when your willpower wanes.

And if your employer is splitting your pay into 2 accounts, it may be possible to put your savings at a different financial institution from the one used for checking, Dunn says.

Loewenstein says if another bank isn’t convenient to get to, that’s another piece of armor bolstering your willpower to keep away from the account. “But, you don’t want it to be so far away or inconvenient that you can’t get to it when you need (the savings) for an emergency,” he says.