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Save by making it automatic

By Jeff Fruhwirth ·
Wednesday, October 31, 2012
Posted: 7 am ET

I used to have a lot of trouble saving money, even though I always followed the rule of paying myself first. After I deposited my paycheck at the bank, I would transfer some of the money to my savings account. Without fail, sometime between then and my next paycheck, I would transfer the money back to my checking account and spend it.

My savings account never grew, and I kept getting frustrated. Why did the "pay yourself first" method never work for me?

After a while, I realized that even though I put the money into savings, I still treated my whole paycheck as something I could spend. For a long time, nothing was changing and I just kept getting frustrated.

After about three years of this, something clicked inside. I realized that if I ever saw the money, I'd spend it. So I decided to make it so I wouldn't even know I had the money.

I opened a savings account at a new bank, and set up a recurring transfer from my checking account. A few days after every paycheck, it would take out $75. Not a lot, to be sure, but better than nothing.

After a few months, the balance was growing instead of staying the same. I finally felt like I had the smallest and most basic corner of personal finance figured out. The best part is there are plenty of ways to get signed up for an automatic savings program, so you can start building savings as well.

  1. Sign up at work - Many offices that offer direct deposit also have an option to split your paychecks between accounts. You can divert a certain amount or percentage of each paycheck into a savings account, and the rest into your checking account. My wife does this every month with her paycheck. Most of her paycheck goes into our joint account, but a portion of her check goes into an account that she uses as she sees fit.
  2. Start an automatic transfer at your bank - This is the method I currently use. I have my bank take money from my checking account and put it into various savings accounts four times per month, based on when my wife and I get paid. The transfers are easy to set up, and you can do them with just your checking account information. You can pick the transfer day and frequency (monthly, bimonthly, weekly) and the amount.
  3. Enroll in a retirement plan - Most companies offer some sort of retirement plan, and many offer a 401(k). Just like with a regular savings account, you can have some money taken from your paycheck and put into your 401(k) account. You do have to choose funds that you want to buy into, and a 401(k) does come with certain restrictions. But it also comes with tax advantages. Talk to one of your human resources representatives for more information.
  4. Start a change jar - Not every way of saving money needs to involve a bank. If you're someone who frequently uses cash for transactions, you probably generate a lot of change and spare dollar bills. Find a jar or some other type of container at home and empty your change and $1 bills into it at the end of every day. After two weeks or one month, take the jar to the bank and have a teller there count it (most banks do this for free) and deposit the money into your savings account.

Using these tips, saving money does not need to be nearly as hard as I was making it for myself a few years back. You can't spend any money that you don't have, so the sooner you get some of your cash out of your checking account and into a savings account, the easier it will be for you to grow your savings.

You can follow Jeff Fruhwirth on Twitter @SustainableLifeBlog.

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