Guest blog post: How to Automate Your Savings

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David Chen

I am honoured to introduce a guest blog post from David Chen, a US-based millennial writer at Millennial Personal Finance.  Here in Australia’s millennials have been under attack for purportedly preferring to brunch on smashed avocado than save hefty deposits for overpriced housing.

Meanwhile David is a single parent, manages to go skiing (I like him already – I just picked up skiing again last years after a 25 year gap), and paid off a whopping $68,000 college debt without getting mum and dad to bail him out.

While most Australians don’t graduate from Uni with the same level of college debt, it is I believe heading that way.  It can be quite daunting for newly graduated people to think about ever getting out of the red and into positive territory.  So I offer this inspiration to you, as well as tips on how to make savings automatic.

“A new season is upon us, and while the weather might not be bright and sunny or blisteringly cold anymore, it is the perfect time to take care of some simple tasks to make your life easier for the upcoming weather changes.  After all, once the days take a turn for the better or worse, you’ll want to be spending your time taking in the new weather (so long as it’s your favorite time of year).

It’s 2017, and automated savings and bill paying is easier than ever before.  There is no excuse for not having your personal finances in order with the variety of tools and techniques available to make sure that your bills are paid, investments are made, and savings are deposited each and every month. Aside from saving yourself some time, automating your payments makes putting aside money for retirement, savings, and other financial goals simple and pain-free.  It also makes sure that you are on top of all of your bills.  With an upfront investment of time, you can take advantage of automated savings for the years to come.

Automated Student Loan Payments

Shortly after you graduate, you will start to receive monthly student loan statements, unless you happen to be one of the lucky few that graduated without student loans.  One of the best and easiest ways that you can save money on your student loans is to automate your loan payments.

Many lenders offer a discount on your interest rate (typically .25 percent) just for signing up for electronic funds transfer (EFT), which simply means that your student loan payment is taken out of your bank account each month.  Better yet, after a certain number of on-time payments (often 36 to 48 months), you may be eligible for cosigner release and for another interest rate reduction from your lender.  When you have automated payments, making those payments on-time is a really simple, provided that you have sufficient money in the account — all that you have to do is set up the process, and the payments are made on-time every single month.  Those interest rate reductions can save you thousands of dollars over the life of your loan. That is why setting up automated student loan payments is a no-brainer, and something that every grad should do as soon as they get their first student loan statement.

Ms Frugal Ears comment: in Australia you can make additional voluntary repayments on a HELP student loan in several ways including by BPay or direct credit.]

Automated Bill Payments

In the hustle and bustle of daily life, it is easy to misplace a bill or to just forget to pay it.  Automatic bill payment makes it easy to never miss a bill payment — and avoid costly late fees and other charges. 

Think of it this way: you get a store credit card bill for $50, and toss it onto your desk to pay it later.  You forget about it, and get a notice that it’s late, plus a charge of $35.  Now the $50 pair of pants that you bought cost $85 — not such a deal after all! A missed utility bill can have even more serious consequences, such as your water or electricity being turned off, if you aren’t careful.  Many companies offer the option of electronic delivery of your bill directly to your primary bank.  Take advantage of these options, and automate your bills to avoid these potential calamities.

Automated Savings

Let’s face it: saving money isn’t exactly fun.  Compared to spending money, saving money is fairly boring — which is why it is so important to set up a system that does it for you.  By automating your savings, you can divert your money into a savings account before it ever reaches your checking account, so that you never have an opportunity to spend it.  It’s a pain-free way to save, and an easy way to build up your nest egg.

The same principle can be applied to other types of saving.  You can automatically put money into your 401(k), a Roth IRA, a 529 college savings plan, a mutual fund or another type of savings account.  By setting up automatic savings plans, you will resist the temptation to see money sitting in your account as funds that you can spend.  The money will instead be out of sight — and out of mind as cash that you can spend. Over time, the earnings and interest will continue to grow — and your savings will increase substantially through automation.

Ms Frugal Ears comment: talk to your employer about options for making additional payments into your superannuation scheme. You might even be able to salary sacrifice to obtain even greater benefits.  New rules to superannuation coming into effect from 1 July will encourage people to start saving earlier – so the little extra bits you add now will really add up.

Automating your bills and savings is an easy way to manage your finances that can save you money, increase your savings, and make sure that your bills are paid on time.  Take the time to automate today — and reap the benefits in the future.”

Do you automate your savings? Or paying your bills? 

One comment

  1. Great post David. I often talk on finance automation. Very important as it takes off the burden of the extra work as well as reducing the self discipline needed each pay period to save money!

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