We’re here to talk to you about the magic of automated savings. It might seem like a no-brainer, but shockingly few women take advantage of this little trick, which can put you on the path to real wealth in the blink of an eye. It’s the practice of saving that leads you to feeling comfortable enough to invest. It’s the “gateway drug” to investing and growing your wealth, if you will.
Pay yourself first
One of best life lessons you can learn is to always pay yourself first. Before bills, rent, Spotify, what have you: pay yourself first. If you don’t prioritize your own long-term wealth, you’re missing out on a giant opportunity to build up real wealth just for some minor, non-necessary immediate desires.
How do I automate my savings?
Just like the taxes and the 401k contributions that automatically get deducted from your paycheck, all you need to do is set up a High Yield Savings account separate from your bank savings account. When you automate your savings, you’re setting aside a portion of every paycheck, automatically. You can ask your HR rep to direct this percentage of your earnings to a savings account or you can set it as an automatic transfer from your checking to your savings on your own (it’s just connecting 2 banks and it’s totally free!). If you’re self-employed, you can set up that savings to automatically withdraw a certain amount of cash every so often.
How do I find a good savings account?
Research a “high yield savings” account that will earn you at least 2% Annual Percentage Yield or higher (Note: the national APY for a top retail bank is .03% << don't settle for that!).
Here’s a list of top one’s on Nerd Wallet, our favorite financial product comparison website, where you can review options side by side. While you’re at it, check into what your current savings account’s APY is? If it’s lower than 1%, you’re losing money (aka purchasing power) to inflation as costs rise yearly. Let this be the fire under your butt to make a move to an institution that will pay you to park your money there!
How much do I save?
It would be great if you could aim for 20% of your gross income. A lot of women who have been through an ElleFactor Circle are saving upwards of 35% of their income so yes, it can be done!
So if you make 70k annual, that’s $14,000 per year. Divided by 12 months = $1,166/mo or $583/paycheck if you get paid 2x/mo. If that’s not possible, start with 10% which would be $583/mo or just $292/paycheck.
What? That’s too much?
You can jump to that conclusion because maybe you haven’t done it before and that number seems high, but no one is going to save for you. So know this: if you automate your savings to a separate account that you don’t look at monthly, two things will happen. You’ll learn to live off what’s left (it’s amazing how we can adjust to fit new circumstances, especially one’s we’re motivated to!) and it will build quickly, making you feel like the total boss you are.
If you have at least 3-6 month’s worth of fixed expenses in a high yield savings account you might be ready to move on to investing so you can grow it faster than sitting in said savings account. Your next step would be to learn about investing or join the ElleFactor community where women are active investors in the markets, real estate and each other.
Why does automating saving work so well?
Well, you’re essentially hacking yourself. It’s really hard to consciously move money out of your checking account once it’s in there or hope you don’t spend too much so you have some left over to transfer to savings at the end of the month.
I wanted to a buy new pair of shoes this month so I’ll need my full paycheck. I need to buy a few flights this month so I probably won’t have anything else leftover.
When you automate your savings, those excuses aren’t even an option. You take out the guess work by making it inevitable. Thank you technology!
Pro tip: If you use a budgeting app like Personal Capital, NerdWallet or Mint, we recommend that you don’t link that new High Yield Savings account for awhile so it doesn’t count that chunk of change towards your overall debt/cash ratio. Out of sight, out of mind. Just let it build while you go about your life and then suddenly you’ll be flush with cash and ready to take the next step towards your financial future!
After setting up automated savings, I basically blinked and had $10,000 in savings.
- Julia T., ElleFactor alum