If you do a Google search on “saving money” tons of articles will pop up about the virtues of opening a savings account and contributing to it regularly, and in almost every article, the author recommends automating your savings. That is, having the money automatically withdrawn from your checking account every month and thrown into a savings account. Obviously, there are a lot of pros to this approach. People usually treat automated savings like a bill that they have to pay, which means that they’re more likely to save every month. Some people even have the money siphoned off of their paychecks and into a savings account, so the money never even makes it into their hands. Given the overwhelming number of personal finance experts who recommend this approach, I began automating my savings back in July. At the time, I had $100 per month deposited into my Freedom Fund and $100 per month deposited into my Roth IRA. While I’m not unhappy with the results of automating, I’ve concluded that I don’t think that automating my Freedom Fund savings is for me. Why? Allow me to explain…
The main reason that I think automating my savings doesn’t work for me is that I developed an “I’m done!” mentality. Once that $200 went into my savings accounts, I felt like “okay, that’s all I have to save, good for me!” and I’d just spend the rest of what was left in my checking account, even though I had plenty left over that I could have been saving. Obviously, there’s no law that says you can only save your automated amount. Some people look at their automated amount as a minimum, and then save whatever extra they can each month. Unfortunately, I wasn’t one of those people. I couldn’t help but feel like my task had been accomplished, and I didn’t need to push any harder.
Since January will be a bad month for me in terms of savings, I’m looking for ways to save more in February. Without that magic automated amount going into my savings, I feel a healthy amount of pressure to just save as much as possible. So I think I’m going to roll with that for a little while and see where it gets me, by looking at my Freedom Fund savings on a month-by-month basis and just trying to save as much as possible. I really think that I’ll end up reaching my savings goals sooner with this approach.
The caveat (or maybe contradiction) to my feelings about automated savings is that I don’t think that the “saving as much as possible” approach applies to retirement savings. I do think that retirement savings are best accomplished by automatic, pre-tax deductions from one’s paycheck, assuming that you’re using an employer sponsored and matched 401(k) or 403(b) plan. Even though I don’t participate in my employer’s 403(b) because I don’t get a match, my Roth IRA savings will remain automated. Why? I have a specific, end-of-year goal I want to reach and I don’t see the need to go any higher on it for right now, whereas I’d really like to have as much as possible in my Freedom Fund.
The bottom line is, you have to know yourself when it comes to savings plans and what your personal behaviors and attitudes are. Also, experimenting with different approaches is key to finding what works for you.
Are you conducting any PF experiments this year? Also, how do you stick to your savings goals?