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. Ladies, 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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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)?