Setup Your Automatic Savings Plans

In an earlier article I talked about how to set up your checking accounts to put your financial life on auto pilot. One of the things I do is automatically have my savings taken out of one of my checking accounts that I put all my monthly fixed expenses. I make my savings become a fixed expense just like my utility bills or mortgage. I pay myself first which is a method that I'm sure you have heard a hundred times. By doing this all automatically it becomes less painful and gets "lost" in all the other expenses. This getting "lost" is good because you tend to forget that you are saving this money.

What should you do with this money. Well just don't let it sit there. Have it moved, of course, automatically to a good savings vehicle. I use INGdirect for my emergency funds and Schwab for my investments. I have these companies automatically move the amount I have identified as savings to my accounts at these sites. The INGdirect.com is a traditional savings account but with a higher interest rate than you will find at your bank or credit union. With the money going to Schwab I have that invested in a mutual fund for my kid's college funds. You don't need a lot of money to get started at either of these sites. Getting started with either is easy.

Again, set this all up automatically and it is just easier. Before you know it you have a nice stash.

Organize Your Checking Accounts to Better Manage Your Money

Here is how I organize my checking accounts to separate my fixed expenses and my discretionary expenses. I have 2 checking accounts, one I'll call the Fixed Checking account and one I'll call the Variable Checking account. I then setup certain bills to be automatically paid out of my Fixed Checking account. I hate to write checks and since these expenses are pretty much non-negotiable I have them take out the money automatically. In the Fixed Checking account I pay expenses like the mortgage, electric bill, gas bill, telephone bill, car loan payment, etc. I put all the utilities on budget billing so the amount is basically the same all year. I also add one important thing to this account. I also add to the Fixed Checking account my savings for each month. I add an expense for my kids college savings and our personal savings. I have my brokerage then take these amounts out each month and invest them automatically. I then add up all these fixed expenses and have my employer, using direct deposit, put an amount in my Fixed Checking account every payday to cover these expenses for the month. I then have the rest of paycheck put in my Variable Checking account. From the Variable Checking account I pay things that are less important and for unpredictable amounts, like credit cards, dance classes for my daughter, vacations, etc. If we don't have the money in the Variable Checking account to cover the expense, we can't afford it.

With this method, I know the basics living expenses and my savings are covered with the money in my Fixed Checking account. I can then just concentrate my time on monitoring the money going out of the Variable Checking account. I don't pay any other bills out of my Fixed Checking account so that I don't get myself in trouble meeting those expenses. You have to monitor your Fixed Checking account every few months to make sure one of the expenses didn't go up or down and adjust your direct deposits accordingly. If one of the expenses would go down, I then add that money to my savings amount each month. This really helps me to keep an eye on my discretionary expenses. Once you get it all setup it's really easy to keep going. Try it!