I realized the other day that while I’d mentioned how I amortize big expenses through automatic saving, that I’ve never done an explicit post on it, so I thought it might be a good discussion. What are your best tips on how to automate your savings? How much each month do you send to automatic savings (versus automatic investments)? Do you save for specific big expenses (like bills you know are coming), breaking them into smaller chunks each month, or are you just saving for a future nebulous expense like a downpayment or wedding? If you’ve got big debts (like student loan debt), how do you decide when to save vs when to pay down debt?
I have automated a ton of my savings, mostly to amortize big expenses — in fact most of our monthly income is immediately sent to automatic savings or automatic investments, which means that it can feel a little tight if our credit card bill is too high or the blog income (which varies widely) is too low.
You can set this up in a lot of different accounts, but personally I’ve used Ally for the past five or six years. (This is not a sponsored post!) I like Ally because I find it very easy to 1) set up new accounts with beneficiaries and so forth, 2) in Ally you can label the accounts silly things like “Griffin Fun Money,” 3) they offer a pretty good savings rate, 4) Ally integrates seamlessly with my main bank for business and personal use, Chase, and 5) the separate little Ally accounts all sync with Mint — and I’ve set it up so Mint knows the account labels, so it isn’t at all confusing.
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Psst: In honor of this series’ original title, Tales from the Wallet — here’s a mini hunt with wallets we love!
Each month we automatically save money into these accounts in Ally:
Insurance fun – My husband and I both have a fair amount of term life insurance, and the renewal comes at the same time every year, so that can be a pretty big chunk of money — so I added up all of the insurance payments we make through the year, divided by 12, and put that amount into a separate savings account once a month — and then when the insurance renewals come there’s no stress because the money is already set aside.
Vacation money – We don’t take a huge number of vacations but we have a set amount going each month to a separate vacation fund — we’re more likely to use it for a quick weekend trip, but I like not stressing about how much a hotel/plane flight costs — and when the amount gets too big in the account it’s a good incentive for us to actually plan a trip and go somewhere fun
Kids’ expenses/lessons – At various points through the kids’ lives we’ve had what felt like big, predictable expenses for the kids, so I’ve broken them down like I have for the insurance payments (totalling them up then dividing by 12); if the vacation fund gets too big I might also start diverting money every other month to the kids expense bucket.
Griffin Fun Money – After our post on “when to dip into your emergency fund” I realized I needed to change my system a bit, so now we have a monthly amount going into “fun money,” designed to cover those bigger expenses that come along rarely, like buying a new piece of furniture.
Emergency funds – Our emergency funds are fully stocked right now (I have one for business and one for the family), but if we needed to restock things we would put them here.
Other big expenses – If you know you’re saving for a downpayment, a car, or some other house-related project like a kitchen renovation, I would definitely set up a savings account to break it into smaller chunks ahead of time.
Just to be super clear and distinguish this discussion from the one we had a while ago on automatic investing: if I think I’ll need the money within three years, I put the money in savings rather than investments like index funds.
I’ve never been big on CDs, but Ally recently offered some good rates for 12-month CDs so I will admit to having some of our “emergency fund” money in CDs rather than savings accounts — but with Ally saving accounts offering 2.20% right now that’s hard to beat.
(When I looked at bank rates on Mint recently there were a number of different banks offering that kind of savings right now, so definitely shop around if your emergency fund or other cash is earning less than that.)
Readers, how about you — have you automated your savings, whether for specific expenses or a nebulous future expense that’s different than your emergency fund? How much are you putting away each month for savings (vs. automated investments like your 401K)?
Pen and Pencil
I am getting proposals from various vendors to perform a service for my organization. The largest/most well-known of these vendors, whom we have a longstanding existing account with them for other services, has failed to reply to my three emails trying to figure out who our account rep is/set up a call to talk about these new services. Finally, three weeks after my initial email, I called their main sales line and have a phone meeting scheduled with them tomorrow. Would you still consider them as a vendor? My boss and I are annoyed at this lack of response, especially since we have had this new service done previously from them and it costs a lot more than the services we get from them all of the time.
In-House in Houston
I would dump them! If customer service isn’t a priority to them, why would you want them?
Nope. They should be the ones following up with you if they want your business, not the other way around.
Depends. Did you fall through the cracks (in which case maybe switch vendors)? Or do you need to update your contact information (and the problem would be resolved)? You don’t know who your account rep is (could be a you problem).
What are your favorite warm slippers? I will wear them the entire time I’m home so would appreciate something with a touch of shape/support.
I’m also looking for a replacement for my favorite eye cream – Dove w/SPF (discontinued). The Dove is very rich and creamy and fills in all of my fine lines … Almost like a primer+moisturizer. Was so wonderful….. I am in my late 40’s and Dove was perfect for aging skin. Recs if you have skin like me?
Is it Friday yet?
LL Bean wicked good slippers!
UGG Dakota Women’s slippers. Size up! They are soooo warm and cozy.
Yes, LL Bean wicked good. If you might wear them to run outside at all get a pair with the sturdier bottoms.
Haflinger boiled wool slippers. At a less astronomical price, Acorn.
We have automatic withdrawals for saving for property taxes twice per year, and monthly ACH set up for deposits to our kids’ 529 accounts, life insurance, home and auto insurance etc as well as using bill pay for our regular bills like utilities (the bill comes into our Wells Fargo account and we get a notification, press a button to pay it.)
We like to keep a few thousand in our checking account and direct the rest to our regular savings. We moved most of the regular savings to Ally for a higher interest rate late last year. My husband’s paycheck gets deposited there as well since we are tying to get used to living without his income – he plans to retire in a few years – but I earn most of the money and we are still using almost all of mine.
Get those 529 plans started for your kids! My daughter is a senior in high school and it’s so nice to have in-state tuition, room, board, and books already covered.
This is smart. I save by having my salary directly deposited into my Dad’s account, where I am the right of survivor, and he takes my salary and pays all my bills and then deposits an allowance for me into my OWN debit charge account. He recently implemented this b/c he did NOT like the way I spent some of my own money. This way, I am limited in what I can do and where I can buy stuff, but he said that if I were good, he would increase my allowance. This is also what Ed does with Rosa, and she is his wife! So in a way, I feel like I am married in a way to my Dad, but I hope I will have a real husband to manage my affair’s and in exchange, I will have babies for us! YAY!!!!
Most of my salary goes into different savings pots – I have one for gifts, clothes and house purchases, one for holidays, an emergency fund, and an ‘annoying purchases’ fund. The annoying purchases fund covers my professional fees (I’m CIMA-qualified and that’s about £450 once a year), things like my hoover breaking, or a bill at the dentists. I also route all the money that’s earmarked for bills into another account as soon as I’m paid – I get cash back from that one on my bills and it means that’s what’s left in my current account is ‘free’ money (I used to find it annoying that different bills went out at different times of the month so I wasn’t always sure as to what was budgeted for spending, vs what was spoken for in bills.
I do a similar thing. I have 6 savings accounts which get funded automatically from my chequing account on the 15th of the month: Gifts, Travel, Major Purchases (think cell phone, laptop, etc.), Home & Car Maintenance, Baby (I’m currently 6 months pregnant), and Emergency Fund. Travel and Gifts are funded based on historical spending (annual spend divided by 12 for a monthly amount). Major Purchases is funded based on when I think I’ll need to replace major items and how much they might cost averaged into a per month amount from now till then; I adjust the amount based on my predictions. Home & Car Maintenance is based partly on historical data (mostly for the car) and the 1% rule of thumb for home maintenance. Baby is for prenatal needs for mom (me!) and the capital costs for baby (furniture, car seat, clothes, etc.); this fund will probably transition into a Kid’s Expense fund when baby is born. And my Emergency Fund is as much as I can afford to put into it (I have a goal in mind that will take me a couple years to reach it at this rate, but at least I’m funding it!). In the two plus years I’ve been using this system, almost everything has been funded in advance without worry and in the worst cases, it only took me a month or two to catch up to myself. And I’ve used this year’s bonus to pad my savings so I’ll stay on track for the duration of my maternity leave!
Teresa Cho Edwards, CFP®
As a Certified Financial Planner, I recommend my clients automate their savings for major purchases, retirement, 529 and monthly expenses.
A somewhat similar strategy:
1) Retirement savings are automatically taken off my pay check by my employer
2) Both my husband’s and my salaries go into a joint chequing account. From there we automatically withdraw our budgeted amounts for vacation, major household expenses, emergency fund, insurance payments, auto maintenance payments, short term savings into a savings account. I keep track of the levels for each of the categories in a spreadsheet. We adjust to other categories, or general short term savings when we reach certain thresholds in each category. We have been using this type of system for almost 10 years. I feel like there must be something better than a spreadsheet to keep track!!!