How to Treat Your Personal Finances Like Business Financials
HOW TO AUTOMATE YOUR SAVINGS
BY LEAH, AUTHOR OF URBAN 20 SOMETHING
I’m so excited to be here, writing for one of my favorite blogs, Briar’s! I find so much inspiration on her blog and her social media and I hope that I can bring some (relatively useful!) words of wisdom to her space on the internet. In this post, I’m going to walk you through the step-by-step process of automating your savings, thereby saving you your precious time on one of the most important parts of your life; your money.
By way of background, like Briar, I’m a 20-something woman living in one of the world’s biggest cities (I live in New York). We’re both hustling hard at our 9-5, and hustling equally as hard during 5-9 on our blogs. It’s a ton of work doing both, and in order successfully do both, all while also trying to maintain a social life, budget, and some ounce of sanity, I’ve come to embrace the mentality of running my life like a business.
Businesses measure much of their success from their efficiency, and one of the ways we can make our lives (our businesses!) more efficient, is automating. If you are also looking for ways to save yourself time while still achieving important personal goals, this post is for you.
I began automating my savings about 8 months ago and have been kicking myself for not doing so sooner.
WHAT DOES AUTOMATING YOUR SAVINGS MEAN?
Simply put, automating your savings means that you have an automatic system set up so that you save automatically. In general, this means you automatically put a percent of your income into savings each month. It’s not enough to just say you’re going to save 15% of your income each month, it’s safer to have it automatically saved for you. This is similar to how 401(k) retirement funds work in the United States. There’s a set amount taken out of your paycheck before you even get the paycheck and put into your 401(k). I’ll get into the nuts and bolts of setting up your own automating systems below.
So, we understand what automating is. Why should we do it?
Simple. Out of sight, out of mind. Again, think of how much easier saving for retirement is through a 401(k). When you don’t have to physically move it to save, you don’t see it, and it’s painless.
If you’re having a tough month financially, perhaps moving or a big expense comes up, it’s too easy to say “well, this month, I’ll just save a little less”. That’s how we end up not achieving our savings goals. Eliminate that option with automating. It’s like that money isn’t even an option.
HOW TO AUTOMATE
There’s a couple of options:
1- Online bank account. This is my preferred method of automation. Online bank accounts allow you to open several savings accounts so that you can physically see where your money is going to. The online savings account(s) will automatically pull money from your checking account, however often you tell it to. You don’t have to do anything. Bonus: online accounts have a much higher interest than big banks. You’ll see interest go in every month.
My system is this: I am paid twice a month, on the 1st and on the 15th. The money from the paycheck on the 1st of the month goes almost all to rent and student loans. The money on the 15th is the money I use to save. So, every month on the 16th, I have my online savings account pull money from my checking account. It’s automatic and it’s done the day after my paycheck is put in, so I don’t even see it in my checking account or have time to get used to it.
2- Automated checks. If you don’t want to have a separate bank for savings and checking or you don’t want an online account, you can have checks automatically sent to you every month and deposit them into your savings. All checking accounts have bill pay services. Use that to pay yourself first. Have a check sent to yourself from your checking to your savings every month or so and deposit it right into your savings.
Just like a business, it’s smart to categorize and organize your savings. If you only have one savings account, but in your mind, you’re saving up for several different things (student loans, a house, that coat you’re dying for, a vacation), it can be difficult to keep track of how much you have saved for what.
For instance, below are my sub-savings accounts:
Even worse, unexpected costs can come up that dip into your savings and totally throw off your plans. Categorize your savings so you know exactly how much you have saved for each category and then you can spend guilt free! If you don’t have sub-savings accounts, use the spreadsheet on the next page to keep track of how much you have saved for what.
Below are some category examples. What are you saving for?
- Payoff student loans
- Graduate school savings
- New car
- Down payment on a home
- Vacation for X week(s)
- My future wedding
- Roth IRA account
- My children’s college fund
- Clothing splurges
- Furniture/home splurges
- Investment sum
- Christmas and Birthdays
- Charity donations
- Technology advancements
If you have an online savings account, like I discussed above, then you can usually create sub-savings account all within your online account. You can assign each sub-savings account to pull a certain amount from your checking into your savings. For instance, you can see my sub-savings below:
If you don’t have an option to create sub-savings accounts, then I recommend using this spreadsheet I created to manually keep track of it. All you need to do is decide how much money you want to be saving in each category, and then write down every month how much of the money you put into savings is really going to each savings goal.
Like many automation systems, automating your savings does take some upfront work. I recommend spending an evening after work with a glass of wine (or two) and sitting down with a calculator and your yearly goals to look at how much you can save and how much you need to save to reach your goals. Set up your automatic systems, whether it’s an online account or an automatic check sent to you, and hang your percentages on your desk to remind yourself of how awesome you are.
Readers- what tips do you have for managing a budget with a busy schedule?