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Using automatic savings to reach your savings goals faster

Struggling to hit your savings goals? You're not alone. It's not easy ignoring the latest sneaker drop or the call of a last-minute weekend getaway.

An automatic savings account can help you overcome your spending kryptonite, no matter where your money goes. It plays on the idea of out of sight, out of mind. If your money never hits your bank account, you may not be tempted to spend it.

Here’s how automatic savings can give your finances a boost and help you reach your savings goals faster.

What's the deal with automatic savings?

Automatic savings is just how it sounds. You set up an account where your money automatically transfers into savings. 

The money usually moves from one bank account to your savings account of choice on a designated day. It's easiest to automate the money to transfer when you get paid so the cash doesn't sit in your checking account. 

Varo’s automatic savings tools can help you start growing your money without lifting a finger. With Varo’s Save Your Pay, you can save more easily by tucking away a portion of your pay. You can choose the amount and frequency and your account will take care of the rest of the work for you. With Varo’s Save Your Change, you can automatically round up your spending to the next dollar and transfer the change from your bank account to your savings account.

If you have direct deposit through work, you might be able to set up your paychecks for automated savings. You're still totally in control of your money—you choose the intervals and the amounts. You just don't have to think about it because the money moves without any help from you once you set up the plan. 

Why you should set up an automatic savings plan

If you're like most people, your to-do list has no more room on it. Going with an automatic savings plan makes your finances a little easier and frees up some time. 

But that's not the only reason to automate your savings goals. Here are more perks:

  • Less temptation to spend: If you're still transferring money to savings the old-fashioned way, you might be tempted to spend it before you make the transfer. Or maybe you convince yourself to transfer less and keep a little extra for that night out with friends. With an automatic savings plan, there's less temptation because it happens before you can decide to spend it elsewhere.

  • No forgetting: Have you ever found yourself wondering whether or not you transferred your money to savings? Automatic savings eliminates any confusion. You don't have to think about whether or not the transfer happened.

  • Flexibility and customization: You can choose your automatic transfer to happen on the days that work best for you. Maybe you set up transfers to coordinate with your paydays or split up your monthly savings goals into weekly transfers. You can also adjust the amounts at any time.

  • Consistency: By consistently putting money into savings, you can grow the balance faster and get into the groove of good financial habits. 

  • Improved budgeting: Since your savings deposits transfer automatically, you're left with less money to spend. This automation encourages you to build a budget and stick with it. 

  • Options to pause: Life can change quickly, which means your ability to save could change. Say you lose your job or have to take extended time off for an illness. You can easily lower the amount or stop the automatic savings temporarily to match your current situation. 

There's really no downside to saving money automatically. You still have access to the money if you really need it. With the option to adjust what you save at any time, you can keep up with your changing financial situation. 

Setting up your automatic savings account

Think automatic savings sounds complicated? With so much financial technology out there, it's easier than ever to get started. Here's how to automatically put money in a savings account:

  1. Write your savings goals. Without clear goals, it's easy to lose motivation. Figure out what you want to do with your money and how much you need to reach those goals.

  2. Calculate your total savings amount. Check your budget and figure out what you can afford. Choose a flat dollar amount or a percentage of your income if it varies.

  3. Allocate the money if you have multiple savings goals. Maybe you'll put $100 into your vacation fund, $100 in your general savings, and $500 into your house down payment account. This helps you prioritize different goals and put money where it can do the most good.

  4. Choose the type of automatic savings account you want to use. Consider the interest rate and how easy it is to access the money. You might choose different options for different savings goals, such as an IRA for retirement and a high-yield savings account for a house down payment. 

  5. Decide on the timing. Do you want to make one large transfer each month or break it up weekly? Coordinating with paychecks is an easy option—have the money transfer on payday so it's never really in your account to spend. 

  6. Schedule the transfers. Most savings accounts have automatic transfer features that let you choose recurring transfers. Enter the details based on what you decided on timing.

You have a few options for automatic savings plan types. Check out the following three options to get started. 

1. High-yield savings

Have you checked out the APY (Annual Percentage Yield) on the typical savings account lately? You might be shocked at how low the numbers are. It's common to earn well under 1.00% APY. 

High-yield savings accounts shake things up with APYs in the 3.00% to 5.00% range. Think of it as your superpower to boost your savings. 

Check around to find the best rates and terms. With a Varo Savings Account you can earn more—like a lot more with our super high APY (Annual Percentage Yield). Qualify to earn 5.00% APY on up to $5,000 and 3.00% APY on the rest.¹ 

Keep an eye on fees, too. A high interest rate doesn't matter if the bank takes a big cut in monthly fees.

2. Certificates of deposit (CDs)

Listen, it's super tempting to pull out a little money from your savings account for a splurge, whether it's a luxury serum or the latest version of the iPhone. But giving into those urges really cramps your savings style.

Certificates of deposit make it a bit more difficult to steal from the rich (version of you in the future) to give to the poor (version of you now). Unless you want to get hit with some gnarly early withdrawal penalties, you'll have to leave your money in the CD until it matures. 

Think of it as a jail sentence for your money. You won't see it again until it earns parole 3 months to 5 years from now. That may sound harsh, but the perk is you earn higher interest rates with guaranteed returns. 

So how does a CD work into your automatic savings plan? You can set up your money to go into your CD automatically. 

The catch—it needs to be a CD that allows additional deposits. Some financial institutions don't let you add more money after your initial deposit. 

3. Retirement accounts

You might feel like you'll be working forever, but your Golden Years probably aren't as far away as you think. Ramping up your retirement savings now could make it more realistic to spend your days hitting the links or living the snowbird life when you're still young enough to enjoy it. 

An easy automatic savings option is to max out your retirement options like your 401(k). As a bonus, you could qualify for a larger employer match if your company offers one. 

If you're already contributing as much as possible at work, you can start an individual retirement account (IRA) for extra retirement savings. You can put money in both a 401(k) and an IRA.

But you might be limited on the tax perks if you're contributing to both. Depending on your income and how much you contribute to each, you might not get the tax advantages by using both. Check with your tax professional or financial advisor for personalized recommendations when it comes to your retirement accounts.  

Make your automatic savings plan even more effective

Now that you're feeling comfortable with how automatic savings accounts work, you're ready to move from beginner to intermediate level. These tips will help you get even more out of your automated savings:

  • Start slow. If you're nervous about automated savings, you can start with small amounts until you get the hang of it. Once you're comfortable with it and get used to less money in your checking account, you can bump up the transfers until you reach your maximum goals. Giving yourself time to adjust to less money and increasing savings over time can make it easier. 

  • Don't borrow from savings. Remember, we're working on the "out of sight, out of mind" principle with automatic savings. Ignore your savings accounts for the most part once you have them automated so you're not tempted to dip into the funds when it's not a true emergency. 

  • Revisit your goals. You're not the same as you were 10 years ago—a trip down memory lane and all those hairstyles you tried prove that. Your financial goals might change just like your style does, so checking in with them regularly ensures you're still on track and maximizing your savings.

  • Cut spending to save more. Make more room for savings by tightening up your budget. Maybe you're ready to finally accept that you're never going to use your gym membership or you decide to give up that home meal kit subscription that always goes to waste. Increase your automatic transfers by that same amount when you ditch a bill.

  • Make extra payments. Don't let the automation lull you into forgetting to make extra deposits. Things like tax refunds, work bonuses, and monetary gifts can go straight into savings, in addition to the automatic deposits, to help run up your balances faster.

  • Save your change. When you make purchases with cash, toss the change in a piggy bank and deposit it every few months into your savings. If you pay with plastic, you can sign up for various programs that automatically round up your charges to the next dollar amount and put the difference into savings automatically. 

  • Watch your money grow. Monitoring your savings accounts can be motivating. It can also help you decide if you need to make changes to your automated savings, whether that's increasing or decreasing what you contribute. 

Start automating savings now

Automated savings can be a sneaky way to get yourself to save more. Think of it like hiding veggies in your kids' spaghetti, except you're hiding away your own money from yourself for your financial well-being. 

You have lots of options to get started right now. With a Varo Savings Account, you can put the pedal to the metal on your savings goals. And with up to a 5.00% APY,  your money can grow quickly.

You know those pesky fees and minimum deposits you often have to deal with? You don't have to worry about them with Varo. Deposit as much or as little as you want and keep it all without any monthly fees.

No matter what you're saving for, an automated savings plan can make it happen faster. Little by little, you can build up your savings and start living out your financial dreams with confidence.

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