If you want to start saving but aren’t sure where to begin, then an automated plan might be what you need. Here’s why.
1 It makes saving easier. Saving small sums is easier than trying to put large chunks of money aside. You can start with a manageable amount like $50 a month, and then increase it as your situation allows. You can also reduce the amount if you need to.
It enforces good habits. By arranging for a pre-determined portion of your income to be deposited into a savings account, you’re creating a habit. And if you automate these payments, you won’t be tempted to spend the money you intend to save. In addition, many such accounts impose penalties for withdrawals or prevent them altogether. Even if you’re tempted to dip into your savings, you won’t be able to unless you jump through a few hoops first.
You can benefit from compound interest. Aside from your regular savings account, you should also put a portion of your money into an investment portfolio. This allows you to benefit from receiving compound interest. Your investment’s interests are periodically added to the invested capital, meaning that they’ll start accumulating interest as well. For instance, at an average yield of 3%, saving $150 a month for five years will net you $700 in compound interest.