do you save more with your automated savings plan

March 28th, 2008

Do You Save More With Your Automated Savings Plan?

We’re In Debt is holding a group writing project this week talking about savings and encouraging saving.

I’ve always been a little wary of making things automated. Ever since I had an automatic debit to AT&T for my phone bill that even though I canceled it, restarted itself and started billing me for the next people that had my old phone number (which got sorted out but was a huge pain) I’ve felt irrationally biased against anything automatic. That isn’t so say I don’t have anything on automatic debit ever, but it just makes me a little more nervous than it should.

That, combined with the fact that we’re still in debt, and that my spouse gets paid on an irregular schedule in respect to what day of the month he gets paid, has made me hesitant about putting our current savings objectives on automated debits. Which is silly, because something that is forcing us to save is not that same as a bill that may or may not be ours to pay. But hesitant I am, and I’m working on talking myself into setting up automated savings through my ING account.

Every month, I save only $75 right now (excluding the 401K contribution, which is automatically deducted from my spouse’s paycheck). I put $25 in each of my two children’s college funds, and $25 into my “long term” savings fund that will eventually form the base of savings for things like replacing our car and necessary home improvements. Not a whole lot of savings, and when we are out of non-mortgage debt, I will be upping all three of those as well as adding an emergency fund savings (our emergency fund is $1000 right now and already fully funded). And of course, if I set up automated savings now, I can change it in the future to reflect our new savings goals.

Which I guess is the key to the matter for me. I’m afraid that changing it will be difficult and it won’t work correctly and it will cause a huge mess. But that is silly – I am sure it will be fine and not hugely difficult to change once I want to increase them, but the irrational voice in my head says to hold off and wait until we’re saving the “goal” amount every month.

Even without an automated plan I have been consistently saving these amounts every month – I do like the hands-on-ness of doing it myself. But it would certainly be easier to have it done for me.

So what’s your experience? Do automated savings plans make saving easier for you? Do you end up saving more using methods such as these?

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30 Responses to “Do You Save More With Your Automated Savings Plan?”

  1. I actually find that having an automated savings plan makes me save less. It sounds odd but I need to make sure that we have enough each month so I have to save less than we can afford just in case.

  2. Even though I have had to drastically reduce the amount I save each month, I do have a small amount automatically deposited into my ING account. That way, I know I am saving at some level.

  3. I started a couple of DRIPs back in 1999 for $50 each per month. It’s a small enough amount that I don’t really think about it that often. But the best part is that it’s hard to actually get your money out of the DRIP. It’s not like you can hit it at an ATM. You have to do it over the phone or set up some kind of online account. Even then, you can’t get the money right away, they take a week or so if you want to cash out. And I shudder at the idea of calculating the cap gains taxes.

    Recommended if you’re a set it and forget it kinda person.

  4. I’ve come to realize that I do same more, time & money when I do it automatically. Because when the money comes out, I am not sure and I dont miss it. I have tried doing it manually but somehow I will reduce the amount or actually not move it at all.
    I have an automated for my ING, My Longterm & Short term savings, and I have one account that I do manually that will not accept any transfers smaller than a 50.

  5. YES! I love automatic deposits. When we were on the edge of total financial crisis, automating deposits and payments was a life saver. I find that if the savings is automatically moved into a savings account, I will forget about it and won’t be tempted to spend it. If it is in my checking account or in my purse, the temptation to spend may be higher, even though I am not a spender like I used to be, I still find it comforting.

  6. I like the automatic payments, although I have had some trouble canceling some that I didn’t even want in the first place. My bank started an automatic charge for a service I had free from my insurance, and it took 4 months of calls to finally stop it. Otherwise I like the automatic payments – I tend to forget when things are due otherwise.

    I am new to the PF blog world, and have you on my blog roll. Just subscribed too… I’d love to share links. :)

  7. I get paid twice a month, by direct deposit, on the 10th and 25th, like clockwork, so I set up scheduled funds transfers to occur on those days to move $250 from checking to savings.

    If it’s too drastic, I can easily move some back, but what I’ve found is that I never need to. If I budget based on the money that’s in my checking account, I get by just fine… and meanwhile I’m saving $500 a month.

  8. I finally got the auto bandwagon – I find it makes me save more. Before, I could find all sorts of excuses for not making the transfer… Now it happens before I even realize it.

  9. Right now, I only have my retirement set automatically (401k and Roth IRA deduction). I would like to move toward an automatic contribution to my emergency fund every month, but I just worry about adding another automatic deduction into my checking account. I already automatically pay my rent and car payment (mailed out from my bank at the end of every month, SO convenient and saves money on stamps & checks).

    In a way, I’m automatically saving in my down payment account (any money from my paypal account and second job are directly deposited into my savings account) and I’ve saved a lot more. I guess, in a way, I do save more with automatically saving. However, in this situation I don’t have to deal with any sort of bouncing of checks, insufficient funds, or any other fees the bank could charge if I’m not well enough prepared for the withdrawl.

  10. I’ve used the ING automatic deductions. They have been wonderful. They are easy to set up, easy to cancel (and they do stop when you cancel them).

    Also, automatic deductions can be set up to deduct every two weeks instead of a certain day of the month, so I use them to “shear off” $50 from each paycheck. I set mine up for three days after the check comes in…that gives me time to cancel it just in case something comes up and I need to keep the $50 in the checking account.

    Yes, I could do it manually each time, but somehow having it already set up keeps me from being tempted to skip it.

  11. My husband had his direct deposit set up to money each paycheck into the savings account. that works well for us since he doesn’t always get paid on the same day of the month either. I love that it goes there automatically. I know we have saved more than we would have otherwise.

  12. I find automating doesn’t work for me. I like the control of doing it manually – and then I know it is correct. Presently we save 10% of our income from every paycheck. (Sadly its under $100) and at the end of the month I put our surplus into the savings account. Since we are prepping for a move we are not replacing a lot of things and I get to move over another $125 – $150. I also had some bad experiences with direct debit and only do it on my student loan. The student loan gave us a 1.25% decrease in interest rate if I let them take it directly out of our checking account.

  13. I definitely think my wife and I save more with automatic savings. Like others here we use ING. We set it up take take money every week. I can see why you’re a little gun-shy about auto-savings but I’ve had no problems with ING and I’ve been using them since 2003. Without automatic savings we would have to manually go in and transfer the money. Not too difficult, but when we both work, go to school, and raise two kids time gets harder to come by. I think if we didn’t automate we’d still be saving but not as consistently and as a result we’d have less overall in our account (if it’s in ING it can’t be easily spent).

  14. Absolutely. But we started out living that way. We took our paycheck and never saw it in full. We contributed the maximum to every possible savings 401k, Roth IRA, ESPP, and then we got our amount to live on.

    So yes it does. It makes savings painless because we never see anything.

  15. I just did a little calculation based on contributing the maximum per year (divided up into 26 paychecks) to two Roth IRAs and a 401K and my spouse would then bring home about $220 every two weeks. Heh.

    Well, we’ll say $300 because the 401K would be pretax. :)

  16. automated savings are the way to go (our superannuation – the Australian version of 401K i assume) comes out of pay, and then we arrange auto transfers into saving accounts – painless.

  17. Yes, I save more when transferred automatically. Ironically, it was when I had a greater demand on my money (bought a house and then had a mortgage payment) that I started having money automatically saved for me. Now I have three different accounts funded each pay period and I manually fund other accounts with odd bits of money.

    One thing I will never do is automatically pay something. I have no control over that and your example brings home other issues that can result.

  18. The only thing that is truly automated right now is my car loan. In the coming months I plan on automatic to a Roth IRA fund. Outside of my salary any alternative forms of income get transfer to the account I use to pay down debt via paypal or my brick and mortar banks.

  19. Everything I have is automated….Roth, mutual funds, money market, bank savings account, 10 ING subaccounts, student loan and credit card payments. It’s great. I am very OCD with checking everything far more than I need to. Have found it very easy across the board to change, decrease/increase, cancel, change dates on all the accounts. When I have extra cash I use one-time billpay and/or transfer to divy it up between debt, savings, and retirement. I’m a huge fan of online finances.

  20. I think the automated way is a great way to go as long as you stay on top of it. I have a few credit card bills that are autopay and they have worked out great. I went through a stage where I could not remember to pay certain bills every month, not sure why. Automated savings is really good. I have a small amount taken out when my hubby’s check is deposited each week. It is a great way to start out saving and because it is right off the top , we do not miss it. I hope to do more “automated” saving.

  21. I think you’re confused between automated agreements that allow companies etc to debit your account, and one you’ve set up yourself!

    I highly recommend setting up an automatic transfer. It is easy to change if you don’t want to pay it one particular month. When I used this system (don’t have much income now, so can’t save) it worked really well – and sometimes I’d even put more into my savings at the end of the month!

  22. @ Ruby – I’m not confused – they are both agreements to debit your account, just one is to another account of yours vs one is to pay a bill.

    I actually had a problem with one I set up myself too a long time ago when I used to contribute to an investment account (non-retirement). The firm didn’t cancel the automatic debit when I told them to (I was closing the bank account) and caused an overdraft. Not fun times. But I didn’t want to clutter the posts with multiple stories of my failures with automatic debits :)

  23. I don’t know about saving more… but I do know that ING automatic savings are extremely easy to manage and change, if that helps. :)

    I recently set up my first automatic savings plan – to get my 2008 tax refund! *grin* I created a spreadsheet to model the 1040 (simplified to match my situation, of course) and simulated my 2008 tax return. It showed a good-sized refund, shaking out to about $20/wk. So I adjusted my withholding and am automatically transferring the difference into our emergency fund (temporarily). When we file our taxes, everything in the e-fund over $1000 is our “refund”! ;)

    This way, we get the interest AND we get the psychological boost of a fat refund check – with no waiting on the IRS’s slow deposit!

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