Automatic Savings Plans Use Psychology to Help Investors

David Bach made the term "pay yourself first" very popular after writing about it in his bestselling book, "The Automatic Millionaire". In his book, Bach discussed how people should pay themselves a payment much like they pay their credit card bills or car loan payments, and he stated that people should pay themselves before they pay others. Investors and those looking to save should be number one on their own list of people to pay, and that is where an automatic savings plan can help. Making savings automatic will help people pay themselves first.

What Is an Automatic Savings Plan
An automatic savings plan is a way to save that sets up deposits from a person's checking account and deposits them into his or her savings account and makes that savings automatic. After a person receives his or her paycheck into their checking account, an automatic savings account will transfer that money automatically to a savings account. Many people set this automatic savings plan up using money market accounts and take advantage of the highly competitive money market rates that are available now. People typically set the transfers of an automatic savings plan to happen on a set day of the month or on certain weeks. Many make this coincide with when they are paid.

How to Set an Automatic Savings Plan Up
An automatic savings plan can help people earmark money for a particular savings goal or to boost their emergency fund. Many banks, an automatic withdraw from a checking account to a money market account can take place with as little as $25 per month. A lot of people think that they cannot spare a single penny from their monthly budget to set up an automatic savings plan, but there are very few people who cannot find an extra $25 per month or that amount each paycheck.

Automatic Savings Plan and Psychology
For many savers, it is the getting over the initial hump of starting an automatic savings plan that can be the toughest step. Once a banking customer sets up an automatic savings plan and make transferring funds from a checking account to a money market account, they end up fooling themselves into forgetting about that money. Money grows at competitive money market rates without the saver even realizing it because the funds are transferred and deposited in the money market accounts automatically. By taking the cognitive thought out of the equation, people forget that they are saving money with an automatic savings plan.

Using an automatic savings plan helps people pay themselves first even when they feel like they cannot find another dollar from their monthly budget. Eventually, a person will actually forget that he or she is saving consistently every month through money market funds with an automatic savings plan. Savings becomes second nature when a person pays himself or herself first.

 

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Hank Coleman - About the Author:

Hank Coleman is the founder of several financial blogs, focusing on topics such as how to find competitive money market rates and other investment opportunities. He is an entrepreneur and professional in the government sector. Hank holds a Bachelor's degree in Business Administration, a Master's in Finance, and is currently studying for his Certified Financial Planning (CFP) credentials. Always looking for a trusted financial institution for advice and tips he tends to look up information at http://www.discoverbank.com more often than not.