How To Build and Automate Your Savings With Your Bank: A Step-By-Step Guide

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Saving money, whether it’s for your financial goal of building an emergency fund or storing funds away for retirement day, is a crucial step. When it comes to investing, retirement planning or even just paying your bills on time, it’s a good idea to know that you are contributing to your savings automatically, which alleviates the risk of forgetting, human error or putting it off altogether. 

Sometimes, it can be confusing and frustrating to start saving money, but it doesn’t have to be. Here are seven steps to help you start building and automating your savings to better serve your long-term goals. 

Step 1: Set Clear Savings Goals

The first step is to set a reasonable and clear savings goal for yourself. Consider how much money you have left each month after your regular expenses. Take a percentage of the remaining amount and set your savings goal off of that figure. This way, all of your expenses will be covered first and then you can use some of the extra cash you have in your checking account.

Ask yourself what you are saving for — whether it’s an emergency fund, a vacation, a down payment on a house or retirement — and how your bank can help. Having specific targets in mind like the following examples will motivate you to stick to your savings plan.

• Emergency fund: Aim to save at least three to six months’ worth of living expenses so you are covered in case of any financial shock like medical bills or job loss.
• Vacation fund: Calculate the total cost of your trip and set a target date. That way you can work backward to break down how much you’ll need to save each week or month.
• Retirement accounts: Determine how much you need to save to maintain your desired lifestyle and automatically fund those accounts accordingly each paycheck.

Step 2: Formulate a Budget

If you haven’t already done so, creating and setting a budget for yourself is key. Determine how much you need for your fixed monthly costs such as your mortgage or rent and then account for the average of your variable costs such as utilities, groceries, entertainment, etc. Once you budget for each category, see how much cash remains after you subtract all of these expenses from your take-home pay.

Calculate how much you can realistically set aside each month. Review your budget and see where you can cut back on nonessential spending. The key is to find a balance that allows you to save without feeling financially strained. You can try some of the following tactics to better build out your budget.

• 50/30/20 Rule: Allocate 50% of your income to needs, 30% to wants and 20% to savings. This way you know all your bases are covered. 
• Pay yourself first: Treat your savings like a bill and set it aside before spending on anything else. After all, you are your best employee so paying your future self is just a good investment. 

Step 3: Pick a Dedicated Savings Account

Now that you’ve set your goals and created a budget, the next step is to pick a savings account that’s right for you. Some savings accounts have a required minimum daily balance to keep the account open or charge a monthly fee. Other savings accounts, such as high-yield savings accounts, offer higher-than-average interest rates. 

For example, to avoid mixing your savings with your everyday spending money, open a separate savings account. Many banks offer accounts specifically designed for savings with features like higher interest rates or bonuses for reaching certain savings milestones. Here are some outlines of basic savings product options:

• High-yield savings accounts: Offers higher interest rates than regular savings accounts.
• Money market accounts: Provides better interest rates and limited check-writing privileges.
• CD accounts: Certificates of deposit, or CDs, lock in your money for a fixed term with a guaranteed interest rate.

Step 4: Open Multiple Savings Accounts

If you have a variety of different savings goals, it’s wise to open not one but two or more savings accounts. Each savings account can be used to save for a different goal such as an emergency fund, a family vacation or a down payment to purchase a home. Typically, you’ll need the following to open a savings account:

• A government-issued photo ID;
• Your Social Security number or individual taxpayer identification number;
• A second form of identification;
• A minimum initial deposit, in some cases.

Step 5: Elect For Automatic Deposits and Transfers

Once you have one or more savings accounts set up, consider setting up automatic deposits or transfers from your checking account to each of your savings accounts. One tip is to set the automatic deposit date on the same day you’re paid. The money will go straight into your savings and it’ll be like you never saw it.

You can also automate your transfers as automation is the secret to consistent savings. Once you’ve determined how much you can save, set up automatic transfers from your checking account to your savings account. Most banks allow you to schedule these transfers on a weekly, bi-weekly or monthly basis.

Step 6: Set a Timeframe for Your Automatic Savings Plan

Your savings goals might have specific timelines. Think about how long you need to save for each goal and determine the periods in which you set your automatic transfers. For example, if you’ve reached your goal of saving for that home down payment, you could change or end the automatic deposit or start saving for a new goal.

Step 7: Monitor and Adjust Your Savings Plan as You Grow

Even with automated savings, it’s important to regularly review your progress. Check your account balances and track how close you are to reaching your goals. If you receive a raise or have extra money, consider increasing your automated savings amount.

Although your savings might be automatic, it’s smart to check on your savings account at least once a month to see the progress you’ve made. You’ll also be able to see any interest payments that are paid to you, which get added to your balance and compound over time. If you’re suddenly incurring higher monthly costs because your rent went up or now you have a new monthly car payment, be sure to adjust your savings rate to align with your current budget. 

• Set monthly or quarterly check-ins: Review your savings plan periodically.
• Use budgeting apps: Many apps can help you track your progress and adjust your goals.
• Explore automation tools: Many banks offer advanced tools to help automate and boost your savings. These tools can round up your purchases to the nearest dollar and transfer the difference to your savings account or automatically increase your savings contribution when you receive a paycheck.

Final Take To GO: Stay Committed To Your Savings

The bottom line is that automating your savings through a variety of bank accounts is a powerful strategy to ensure you consistently set money aside for your future. By following these steps, you can create a reliable savings system that helps you reach your financial goals with less effort and more confidence, well, automatically. Make sure to check with your bank to see what accounts can help you best on this savings journey.

Building a habit of saving requires discipline and patience. Life may throw unexpected expenses your way, but staying committed to your savings plan will help you weather financial storms. Remember that every little bit counts, and over time, your savings will grow.

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