How to Use Automatic Savings Accounts & Apps to Build Wealth With Less Stress
Saving money is a lot like eating right. We all know that we should save up for emergencies, retirement, and personal goals, just like we know we should eat more vegetables and fewer cookies. But doing it isn’t so easy.
The problem is temptation. It’s hard to keep from spending money when it’s sitting right there in your checking account. Something always seems to come up that you need that money for. Before you know it, you’re broke until your next payday.
That’s where automatic savings plans come in. They let you automatically set aside part of each month’s earnings in a separate savings account, where it’s harder to reach.
Most people treat savings as an afterthought. They deposit their whole paycheck into a checking account, and they take money out of that account to pay the bills. Their savings is whatever happens to be left over at the end of the month. Unfortunately, that often means they save nothing at all.
With automatic savings, by contrast, you pay yourself first. A portion of your paycheck goes straight into savings and never hits your checking account at all.
Saving this way has several advantages:
To start an automatic savings plan, you need two separate accounts: savings and checking. The checking account is for your everyday spending money. This is the account you use to cover the bills and any extras. The other account is where your savings will grow over time.
Here’s how to set up a basic automatic savings plan:
Suppose you’re going through the list above, and when you come to step 3, you hit a snag. You look at your budget every which way, and no matter how you tweak it, you can’t manage to squeeze more than a few dollars of savings out of every paycheck. With savings that small, it doesn’t even seem worth the trouble of setting up an automatic savings plan.
Well, don’t give up yet. Setting aside a lump sum out of each paycheck is one good way to make savings automatic – but it’s not the only way. There are all kinds of special apps and programs you can use to save smaller amounts here and there throughout the month. Here are some of the best apps for making automatic saving part of your routine.
Some people save extra money by paying for everything in cash and pocketing all the coins they get in change. At the end of the day, they stash all those coins in a big jar. When the jar fills up, they take it to the bank and deposit it all in savings.
This system is simple, but it has its drawbacks. For one, a big jar on your dresser is easy to dip into if you happen to need a couple of extra bucks. Also, most banks make you count and wrap all those coins before depositing them, which is a hassle.
For instance, suppose you go to the supermarket and spend $32.34 on groceries with your debit card. The bank rounds this purchase up to $33, which comes out of your checking account. The extra $0.66 goes into savings.
That’s not a big amount – but when you multiply it by all the purchases you make in a month, it can add up quickly. And the best part is, since each roundup is so small, you don’t miss the money.
Biggest Advantage: The program is easy to use. All you have to do is buy things with your debit card and watch your savings grow.
Biggest Disadvantage: It’s only available for Bank of America customers. You also need to use a debit card, which doesn’t have the same cash back benefits of credit cards.
To use the app, you link a payment card – debit or credit – to your Qapital account. Then, when you shop with this card, it can trigger a transfer to your savings. You can set your own rules for how much money you want to transfer and when.
Sample rules include:
Biggest Advantage: Qapital is easy to tailor to your needs, so you can save whenever and however you want.
Biggest Disadvantage: All your savings go into a Qapital account that earns no interest. Right now, with interest rates for savings barely topping 1% APY, that’s not such a big deal. However, it could be if interest rates go up.
Biggest Advantage: Chime gives you multiple ways to automate your savings. You can save both when you earn and when you spend. According to Chime, if you use your Chime card an average of twice a day, you can expect to save around $400 per year.
Biggest Disadvantage: The interest on Chime Savings accounts is very low. Currently, it’s set at 0.01% APY – about one-hundredth of what you can earn on a typical online savings account.
Dobot is yet another online savings bank with a linked app. However, the Dobot app works a little differently from others. When you link Dobot to your checking account, you set a specific goal that you want to save for. You list the exact dollar amount you need, and when you’ll need it.
Unlike other savings apps, Dobot adjusts the amount you save from week to week. Once a week, Dobot checks the balance in your checking account and compares that to what you’ve been spending. It plugs this information into a special savings algorithm to figure out how much cash you can afford to put into savings. Then it transfers that amount to your FDIC-insured Dobot savings account.
Dobot’s algorithm is designed to make sure you never run short of cash. However, you can always transfer money back out of Dobot into checking whenever you want. In addition to automating your savings, Dobot sends you regular texts to tell you how you’re progressing toward your goal. It offers encouragement to keep going and advice on how to save more.
Biggest Advantage: Dobot’s algorithm is designed to make sure you only save as much as you can afford. That way, you never risk overdrawing your checking account.
Biggest Disadvantage: Like Qapital, Dobot doesn’t offer any interest on your savings.
Acorns invests in six different ETFs: large companies, small companies, government bonds, corporate bonds, real estate, and foreign stocks in developing countries. It divides up your money among these six funds based on your income, net worth, and risk tolerance.
There are several different ways to invest with Acorns:
Biggest Advantage: Acorns offers an easy way for new investors to get started investing, even if they don’t have a lot of cash to spare.
Biggest Disadvantage: Unlike other automated savings apps, Acorns isn’t free. It charges a fee of $1 a month if your balance is under $5,000. On balances over $5,000, you pay 0.25% per year.
The nicest thing about an automated savings plan is that you can “set it and forget it.” Once you have it set up, your savings takes care of itself. The only time you need to make a change to your plan is when there’s a change in your financial circumstances. For instance, if you get married or start a family, you need to readjust your savings plan to fit your new household expenses.
However, some changes don’t have to affect your plan. For example, if you get a raise at work, you don’t need to alter your plan to send that extra money to your checking account. You can just keep going on as you are and let the extra money go into your savings. After all, just because your income goes up, that doesn’t mean your expenses have to.
If that sounds like no fun to you, then you can compromise. Adjust your regular withdrawals to use some of your increased income as spending money while letting the rest of it stay in savings. That way, you can enjoy a few extra luxuries and boost your monthly savings at the same time.
Do you use an automated savings plan? If so, do you have any other tips for success?
Categories: Banking, Budgeting, Money Management, Spending and Saving
Amy Livingston is a freelance writer who can actually answer yes to the question, “And from that you make a living?” She has written about personal finance and shopping strategies for a variety of publications, including ConsumerSearch.com, ShopSmart.com, and the Dollar Stretcher newsletter. She also maintains a personal blog, Ecofrugal Living, on ways to save money and live green at the same time.
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How to Use Automatic Savings Accounts & Apps to Build Wealth With Less Stress
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