Personal Finance Basics: Automatic Withdrawal For Your Savings
Personal finance basics don’t need to be too hard. If you’ve been following over the last few weeks, you’ll know that we have been bringing down our debt and building an emergency fund, all thanks to spending less than we’re making. None of these things are particularly difficult, but they do take a fair amount of willpower and time. Now, a lot of time is hopefully something we all have in our futures. Willpower, however, I expect to be in a lot shorter supply. So how does one conquer oneself? By removing the human element from the equation.
Setting up automatic payments is probably the best financial decision I ever made. Back when I was in college I signed up for an online bank account with Tangerine (use an Orange Key for a free $50). I then set up an automatic withdrawal from my regular chequing account. It wasn’t a lot of money. I think it was about $25 a month. However, even that small amount helped sell me on the benefits of automatic transfers. At the end of the year my chequing account was empty but my Tangerine account was far from it. From there, it grew. Post college I had a real job and upped my monthly transfer amount. I set up a secondary Tangerine account and started an additional transfer. I applied a liberal amount of time, and eventually that money helped my wife and I get married, and later, buy a car.
Saving up that much money can be daunting and incredibly difficult, but for me it seemed easy because it was a decision I only made once. You too can do the same.
Set up an online bank account if you don’t already have one. I prefer Tangerine, but there are multiple options out there. Most should require a link to your main bank account, so it may take a few days to get completely set up. Once you are, hop in and take a look at what you can and can’t do. Check, for example, how long it takes to transfer money from this account to your main account. A longer amount of time is often a a good thing, as it prevents one from making impulse purchases with the saved money, but if you are setting up an emergency and are concerned about the amount of time it takes, check into your various options.
Now, also look into their automatic withdrawal options. What you’ll want to do is set it up so that you are regularly putting money aside. It is completely up to you what you want to start saving for. Retirement, a car, emergency fund, whatever you’d like. How much you can afford is also up to you. I would suggest a smaller amount to start, something that will add up to a lot over time, but is not do much that your finances will be strained. $25 or $50 is a good place to start. I also suggest you have it set up so that it comes out on your payday. Money goes in, money goes out, you never notice it being gone. You will, however, notice your online bank account slowly grow. Even at $25 twice a month you will be saving about $600 a year. If you are 30, that means you’ll be saving about $22k before you retire. In the grand scheme it may not seem like a ton, but at $25 a pop that sure adds up over time, especially if you consider the power of interest over time as well.
Do you have an automatic withdrawal for your savings? How much do you save with them?