Let's face it; we have all been there. That daunting feeling at the end of the month when you realise you've once again missed putting money into your savings account. Despite your best intentions, life's little expenses sneak up on you, and before you know it, the chunk of money you were hoping to save has gone away.
The problem is that manual saving requires a level of discipline that not all of us possess. Wouldn't it be nice if your money could just - magically - move itself into savings? Well, it can. Welcome to the world of automatic savings plans.
The Importance of automating your savings
Why does automating your savings matter? It eliminates the friction and excuses that come with the traditional approach to saving. No longer will you say, "I'll do it tomorrow," because, well, it'll happen whether you remember or not.
- Ease and Convenience: Once you set up an automatic savings plan, it takes care of itself. You don't have to take time out of your busy schedule to transfer money manually.
- Consistency: Developing a consistent saving habit is essential for building a sound financial future. For instance, if you are inconsistent with your saving habits, automating your savings can help grow your account steadily.
- Out of Sight, Out of Mind: The beauty of automation is that you won’t notice the small amounts being moved from your current account to your savings. This means less temptation to spend.
Let's understand this with an example. Arjun used to spend recklessly until he automated his savings. With less disposable income visible in his account, he curtailed his impulse buying.
How to automate your savings?
Now that we've identified the pain points, let's get into the nitty-gritty of setting up your own automated savings.
Choose the right savings tools
First things first, select the saving tools that align with your financial goals. Here are some options:
- Regular Savings Account: Best for short-term goals like an emergency fund.
- Fixed Deposits: Good for medium-term goals with higher interest rates.
- Mutual Funds SIP (Systematic Investment Plan): Ideal for long-term goals like retirement or buying a house.
Open an account
Choose an account that best fits your savings objectives. Many banks like Kotak811 now allow opening free account online.
Key considerations
- Interest Rate: Look for accounts that offer competitive interest rates. You can consider a Kotak811 digital savings account with the ActivMoney feature, offering up to 7% interest p.a.
- Withdrawal Restrictions: Consider accounts that discourage frequent withdrawals by levying charges beyond a certain number of transactions to aid your savings journey.
Must Read: Are You Getting Monthly Interest Credited?
Set up automated transfers
Here comes the crux of your automatic savings plan. You have various ways to set this up:
- Bank Standing Instructions: You can instruct your bank to move a certain amount of money at regular intervals from your current account to your savings.
- Employer Deductions: Some employers offer the option to deduct a portion of your salary straight into a savings or investment account.
- Apps and Software: Several apps are designed specifically for automating your savings. They can round up your daily expenses to the nearest Rs 10 or 100 and put the difference into a savings account.
The benefits of an automated savings plan
You’re setting yourself up for success by automating your savings. Let's dig into some of the key benefits:
Builds discipline and consistency
Automation makes saving non-negotiable. You can't 'forget' to save money when it's happening automatically.
- No Procrastination: Since it’s automated, you’re not given the opportunity to procrastinate or rethink your decision.
- Maximises Earnings: The sooner you start saving, the more interest you accumulate over time.
- Compound Interest: This is interest earned on interest. Over time, it can result in significant gains for your savings. An initial investment of Rs 10,000 can grow to Rs 16,386 in five years, thanks to compound interest.
The power of compound interest in automated savings
When you automate your savings, your money isn't just sitting idly in an account; it's actively growing. Every penny saved is compounded over time, exponentially increasing your wealth. Unlike a simple interest system, where the interest is calculated only on the principal amount, compound interest is calculated on the initial principal plus the accumulated interest. This leads to your money multiplying at an accelerated rate.
Recapping key takeaways
- Automating your savings is a practical life hack for achieving financial stability.
- The automated savings approach is accessible and useful for all age groups, from tech-savvy youth to older individuals.
- Understanding different saving tools helps you choose an appropriate savings plan that aligns with your financial goals automatically.
- Utilising the auto money debit feature eliminates the downsides of manual savings, like inconsistency and temptation.
- The power of compound interest not only saves your money but also grows it over time.
- Automating savings is an effortless way to accumulate a substantial amount; you can save a lot without actively participating.
- Automated savings benefit both beginners and experienced savers, aiding your journey toward financial freedom.
You might be surprised to find out how much you can save without even lifting a finger. So why wait? Get started today and make your money work for you. And remember, whether you’re a beginner or a seasoned saver, automation can be your best friend in your journey toward financial freedom.
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Frequently asked questions
Can I change my automatic savings plan once it's set up?
Absolutely. Life changes, and so do your financial goals and needs. Most plans allow you to modify the amount and frequency of your savings. Check with your bank or savings app to understand their specific terms and guidelines.
What happens if there are insufficient funds in my account?
If you don't have enough money in your account, the automatic transfer will generally not go through, and you may incur a penalty or fee.
How safe are automatic savings plans?
Automated savings are generally very secure, especially if you're using net banking or mobile banking of reputable banking institutions like Kotak 811. However, always read the fine print, check for authentication protocols, and ensure you can easily contact customer service in case of any issues.
Can I set up multiple automated savings streams for different financial goals?
Yes, diversifying your savings is an excellent approach. You can set up different pots for various financial goals like an emergency fund, vacation fund, or retirement fund.
Conclusion
Automating your savings is not just a modern convenience; it's a financial strategy. By consistently saving a portion of your income, you can build a safety net for emergencies, achieve financial goals, and create a more secure financial future. And the best part? You don't even have to think about it. Isn’t it time you made your money work for you?
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