Hopefully you enrolled in your employer’s retirement savings program as soon as you could. Just as you have money automatically withheld from your paycheck to fund a 401(k) - or similar - account, did you know that you can have money automatically directed from your paycheck to a regular savings account? While most employees use direct deposit to receive their pay, less than 25% divide their deposit between a regular checking account and a non-retirement savings account.
Think about it.Why are you successful in building up your retirement savings? Likely it is because you don’t have to make a decision or take an action every time you get paid. You can build up your emergency savings (or other savings goal) in the exact same way. If your employer offers this option (many do, but not all), you simply advise your payroll department to deposit a set amount of each paycheck into a different bank account. And you’re done!
What should that different bank account be? Consider opening an FDIC-insured savings account at a bank separate from the one where you keep your day-to-day checking account. This might be an online-only bank that can offer a higher interest rate. Keeping these savings “off site” may make it easier to avoid temptation by keeping the funds just slightly out of daily reach - but still accessible if an emergency does occur.
Of course, there is a DIY hack for this concept — setting up an automatic transfer yourself from your checking account to a savings account. However, in that case the money is still, at least for a short time, very available to you. Moreover, it is still part of your paycheck; the beauty of having savings withheld “at the source” is that you do not have the opportunity to absorb it into your lifestyle, even mentally. When you think of your take-home pay, that saved amount simply is not part of the calculation.
You can start with a small sum; it will not take long before you do not even notice the difference in your paycheck. Then, increase the amount as your comfort level goes up or if your pay rises. Even $20 every two weeks will result in $480 after a year. At this very moment, would you feel more financially stable if you had an extra $480 saved up? “Split to Save” is a simple, highly effective way to execute your savings strategy!
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