What’s the Best Way to Start Saving? Make It Automatic.

By Linda Kaplan Thaler and Robin Koval, on July 29, 2009

There’s no question that these are trying times. With car payments, house payments, credit card debt, and the cost of daily life, saving for the future can feel like an impossible task, but by harnessing the power of small, each of us can achieve whatever we set our minds to, one baby step at a time. And, as we’ve discovered, one of the best ways to get started on saving is to make it automatic.

As personal finance blogger and author of I Will Teach You to Be Rich, Ramit Sethi once said, “Personal finance is not about willpower.” So, the ideal way to manage your finances is to set them up to grow effortlessly.

In other words, try putting your savings on autopilot. Instead of consciously trying to put aside a fixed amount of money into your savings and retirement accounts, make it automatic. When you calculate your monthly budget, act as though the amount of money that you will automatically deposit into those accounts is not a part of your income. Start with a small sum at first and week-by-week, gradually increase the amount you save by just $10. Without even noticing it, you will adjust to your new income level and smile every time you check your ever-growing savings accounts.

THE POWER OF SMALL philosophy is all about taking on the tough challenges one manageable step at a time and nowhere is this more important than when dealing with your long term financial goals. Saving $1 million for your retirement or setting aside enough money for a six month emergency fund can feel like an unattainable goal, but with the simple change of automating your investing strategy, you can slowly but surely meet it.

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Linda Kaplan Thaler and Robin Koval are the CEO and President, respectively, of The Kaplan Thaler Group and the co-authors of the national bestsellers, BANG! Getting Your Message Heard in a Noisy World and THE POWER OF NICE: How to Conquer the Business World with Kindness. Their newest collaboration, THE POWER OF SMALL: Why Little Things Make All the Difference, debuted on the bestseller lists of the Wall Street Journal, USA Today, and The Washington Post. You can keep up with them at The Small Blog or follow them on Twitter.

All posts by Linda Kaplan Thaler and Robin Koval

6 Comments

hustler
July 29, 2009, 23:57

My husband and I decided to live off only his income and save mine. My paycheck is direct deposited into my online savings account. There’s no way I could save it if it wasn’t automatic. If I had that money in my hands and then deposited it later, I’ll bet a good chunk of it would be missing! Good post!
Pinyo
July 30, 2009, 8:16

@hustler – That’s how I manage my finances to. Money is directly debited from my paychecks to pay my mortgage, contribute to 401k, and set aside for my self-employment income taxes. I see less than $800 every two weeks in my bank account (also direct deposit)
FinanciallySmartServices
July 30, 2009, 8:53

I agree with you start with a small amount and then gradually increase it. What we should always remember to do is pay ourselves first. Before paying the bills going to the grocery store etc we should put aside a small amount and place it in our savings. Financial Advisors always recommend 10% but we can start at 5%.
Tammy
July 30, 2009, 9:22

Great post. I agree automatic is best. I set aside money automatically using a no fee checking account. I have an auto draft set up to divert the money on friday.
I also save change in a big jar and this gives me a bit of cash when I have more month than money. Somehow rolling coins reminds me of childhood. On rainy days we would collect coins from around the house and roll and take them to the bank.
Thanks for this great reminder that small amounts add up!
AJ
July 30, 2009, 13:10

I always start out automatic and then things happen. It stinks! I dip inot my savings and I am back at square one.
Craig
July 30, 2009, 13:25

Agree, I recently did that with my Roth IRA and my 10 yr mutual fund account and it’s great. I actually look forward to the day once a month just to see it transfer over knowing I am doing the right and smart thing and the next day I don’t even realize it’s gone.

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