Most of us would like to have more money. Some of us would like to have a lot more. Creating an automatic savings plan probably won’t finance your next Bugatti, but it might pad your pockets in case of an unforeseen emergency or give you that leg up to a carefree retirement. We’ll discuss other methods of creating more money later, but for now you’ll have to remember three things to make your automatic savings plan work:
- Make it automatic,
- Make it count,
- Don’t touch it!
Take the discipline out of the equation, and sign up for an automatic savings plan with your bank. Some banks will call it an automatic transfer or bill-pay, but the idea is to make sure it happens without you having to think about it.
Choose an amount and a frequency you feel comfortable with. You can always change it later. $100/month is a common starting-point, but why not make it $100/paycheck? Then, put compound interest to work for you. Compound interest is just a simple way of saying “getting paid interest on your interest.” 1% interest would pay you $1 on $100. Next time around, though, you are paid $1.01 for your $101. Then $1.02 on your $102.01… And don’t forget your automatic $100 each month. Compound interest is an elementary concept, but many of us forget its immense power.
All the automatic savings in the world can’t make a bit of difference when combined with automatic spending. Running low on funds in your checking account? Stop spending until you have more. Your mother was right: savings should be saved. Don’t touch it.
Saving is the simplest method to grow your money. It may not be as effective as some of the other methods we’ll discuss later, but it is simple and virtually risk-free. Start today.