Let's face it: the world isn't getting any cheaper. Your morning coffee has now become $7.99, and it doesn't seem like your salary is increasing fast enough. Now more than ever is it important to keep track of your finances and slowly build your wealth.
Fortunately, there is a way to make the most of your current income: automated savings. Automated savings work by allowing you to set aside a portion of your paycheck each month in order to build up a financial cushion. It's like growing a money tree that helps you prepare for future purchases or emergencies without having to worry about budgeting too much.
In this article, we will go over terminology like the common phrase "money tree," and how to build your own through automated savings. We'll finish by introducing the best tool on the market for automating your savings, IFTTT. IFTTT is our free-to-use automation tool that can help plant your money tree and secure a future of financial freedom.
What is a money tree?
You know how they say money doesn't grow on trees? A money tree is the antithesis of that old adage. It's the idea that by investing a fixed amount of money each month, you can "grow" your wealth over time. This concept originated from an ancient Chinese proverb, which states that “The best time to plant a tree was 20 years ago. The second best time is now.”
It's never too late to start saving. Best of all, the earlier you start, the better off you will be in the future. This is due to compound interest, which is the financial idea that your money will grow exponentially with a high enough interest rate. Using this concept, the limbs on your money tree will be able to expand quicker and quicker.
How does compound interest work?
Compound interest is the concept that the money you save will make more money over time. This is due to the fact that your interest, or earnings, become part of your principal balance. So not only are you earning money on your initial investment, but also on what you have already earned.
For those with a high amount of wealth, compound interest only becomes more powerful. However, even if you are just starting to save, you can earn yourself a small fortune for retirement if you are diligent about savings and smart investments.
For example, let's say that you invest $1000 in a savings account that has an annual interest rate of 10% (we know, this is a fairy tale example.) After one year, you will have earned $100 (10% of $1000) on your initial investment. The next year, your balance would be $1100 ($1000 + $100). This means that the second year, you will earn 10% of the new balance: in this case, it’s $110.
This process can continue for years, allowing your money tree to grow with each passing season. If you were to maintain a 10% return on your money year after year, your $1000 investment would grow to $304,481 after 60 years.
Understanding Automated Saving
Automated saving is a financial strategy that involves automatically transferring a set amount of money from your checking account to a savings account, or directly into an investment account, at regular intervals. This can be set up to occur weekly, bi-weekly, monthly, or even whenever you make a purchase with some services rounding up the change and depositing it into your savings.
The concept of "out of sight, out of mind" applies here as you're less likely to spend money if it's not readily available in your checking account. Plus, it eliminates the need for you to remember to transfer money to your savings. Once it's set up, the process runs automatically.
Notable Benefits of Automated Saving
Saving automatically is an effortless way to ensure you're regularly contributing to your financial goals. Here are a few specific benefits:
Consistency: With automated savings, you're consistently putting money away without having to think about it. This ensures regular contributions to your savings or investment accounts.
Simplifies Saving: Automated saving takes the effort out of manually transferring money to different accounts. Once set up, it requires little to no maintenance.
Helps Build a Habit: By seeing the growth of your savings over time, you're encouraged to continue saving and potentially increase the amount you save each time.
Achieve Financial Goals: Whether you're saving for retirement, a down payment on a house, or an emergency fund, automated saving can help you reach those goals more efficiently.
Avoids Temptation: Money that's out of sight is out of mind. If it doesn't appear in your checking account, you're less likely to spend it.
Encourages a Healthy Financial Lifestyle: Regular saving is a crucial component of sound personal finance management. Automated saving helps foster this habit, leading to a healthier financial lifestyle over time.
Setting Up Automated Saving (2 Methods)
Automated Saving with a Bank Account
Setting up an automated saving plan with your bank is one of the easiest methods, however, not all bank accounts offer this functionality. By knowing the right steps, your bank will automatically transfer funds from one account to another on a given date. For more specific and engaging savings plans, check out the next method with IFTTT
Here are the steps needed to set up automatic savings with your bank:
Decide on a Savings Goal: Determine how much money you want to save and for what purpose. This will help you decide how much you should set aside each month.
Log into Your Online Banking Platform: Use your credentials to log into your bank's online banking platform. Look for the "Transfers" or "Payments & Transfers" tab in the main menu.
Set Up a New Transfer: Click on "Add a new transfer" or a similar option. You'll need to select your checking account as the "From" account and your savings account as the "To" account.
Input Transfer Details: Enter the amount you want to transfer and set the frequency. Most banks offer the option to make this a recurring transfer, which is what you want for automated savings.
Confirm and Save: Review the details of the transfer to make sure everything is correct. When you're ready, confirm the transfer and save the changes.
Monitor Your Account: Keep an eye on your accounts to ensure the transfers are happening as expected. If there are any issues, contact your bank immediately.
Automated Savings with IFTTT
IFTTT is our free web-based platform that allows you to automate different services, including many banking and financial services. If your bank doesn't offer automatic savings, or you want to save in a more creative way, then IFTTT is likely your best bet.
What do we mean by more creative ways? With IFTTT, you can connect your bank account to services like Qapital, which allows you to automatically save money during many types of events. Want to save money every time the International Space Station passes over your location? Done, we have it right here.
Here are the steps to connect your bank account with IFTTT automations:
Create an IFTTT Account: Go to the IFTTT website and sign up for a free account. After verifying your account, you'll be able to access all of our services.
Find an Automation: Now you can search for specific automations that fit your needs, or browse through the solutions section and see what's available. Most automations are free to use.
Activate Your Automation: Once you've found an automation that works for you, click the "Connect" button. You'll be prompted to fill in any necessary information and connect your bank accounts.
Monitor Your Account: Keep an eye on your accounts to ensure the transfers are happening as expected. If there are any issues, contact us immediately.
Best Money Savings Automations with IFTTT
Save every time Donald Trump tweets Saving money doesn't have to be boring. Turn Donald Trump’s love of Twitter/X to your advantage and save a set amount toward one of your goals whenever he hits ‘Tweet’.
Automatically save money to Qapital when you complete a Strava activity Hit your fitness goals and your financial goals at the same time! Specify the type of activity (run or ride) and the amount you'd like to save when you set up the Applet.
Log my card purchases to a spreadsheet Long gone are the times when you automatically put down your purchases in a checkbook. With this automation, you can keep a handy record of all your spending in a Google Sheet.
Remember, signing up for IFTTT is 100% free, and only takes five minutes to run your first automation. Try it today!