Try as they might, many people find it difficult to save on a consistent basis. They know they should put money aside for a rainy day, but monthly bills and everyday needs and indulgences, from laundry to lattes, seem to absorb every last dollar. It’s only when an unexpected expense arises that people realize they should have been saving all along.
We can’t know in advance what emergencies lie ahead. But this much is certain: Emergencies will happen—and that’s why saving should be a priority rather than an afterthought.
Of course, it can be hard to think about the future when the immediate focus is on staying current with bills and other fixed expenses.
One solution: Don’t think about it. Instead, put your savings on autopilot.
The case for automatic savings plans.
If you have a predictable income, there is probably an amount you can afford to set aside without feeling a pinch or missing a bill payment. Decide what that amount is and arrange to have it transferred to a separate savings product, such as a CIT Bank High-Yield Savings Account, on a recurring basis.1
Prepare for the unexpected.
One of the best reasons for automating your saving is to build a rainy-day fund—a cash reserve to be used exclusively for dealing with financial emergencies. The idea is to make sure you have the money you need when you must pay for unplanned car or house repairs—or when you find yourself unemployed or otherwise unable to work.
As a rule of thumb, there should be enough money in your rainy-day fund to cover your core expenses for at least three months without defaulting on your bills or tapping into your retirement savings.
How to stay out of the rain.
To set up your rainy-day fund, begin by sorting your expenses into three lists:
- “Bare bones” needs—utilities, groceries, car maintenance, rent or mortgage payments, and anything else you cannot do without.
- Less frequent core expenses—such as taxes, insurance premiums, and holiday gifts.
- Unpredictable expenses—including major home or car repairs and medical bills—even if you have health insurance.
There are two main ways to save automatically—through payroll deductions and via transfers from your checking account. Both are easy to set up.
Ask your employer’s HR representative how to arrange an automatic transfer from your paycheck to your designated account:2
- You’ll need to provide your account number and your bank’s routing number to direct the money to the right account.
- Clarify your bank’s policies and whether you’ll be charged a fee.
You can also schedule regularly recurring transfers from your checking account to your destination savings vehicle—at the same or another institution:
- In most cases, you can set up automatic transfers online. Otherwise, contact customer service at the financial institution where you have your checking account.
- Have your account number and the routing number of your savings bank.
Put your money where you can get to it easily.
Since you’ll want immediate access to your rainy-day money in the event of an emergency, it should be in a liquid account—no pun intended—such as a CIT Bank High-Yield Savings Account. It’s important not to commingle your rainy-day money with the money in your other accounts. And do not borrow from it to cover non-emergency expenses.
A win-win savings technique.
Adopting good habits is easier when you don’t have to think about them. You may already be saving automatically through regular contributions to a 401(k) plan or other retirement program. The next step is to expand the concept to your everyday saving.
The earlier you start, the better. Money held in a CIT Bank savings account is compounded daily, maximizing your earning potential.
Chances are you won’t miss the money. And you won’t have to choose between growing your assets and meeting current expenses. Putting your saving on autopilot lets you do both.