Using Automatic Savings to Create an Emergency Fund

• If you’re struggling to put money into an emergency fund, automating your savings can simplify the process.
• You can set up automatic savings by establishing a recurring transfer through your bank or by having HR split your paycheck deposits between your checking and savings accounts. 
• Once you’ve created your emergency fund, you can use tools like Payactiv’s Goal-Based Savings¹ to allocate money to your other financial goals.

Saving money is essential if you want to safeguard your financial well-being. However, remembering to regularly transfer $100 from your checking account to your savings account on your own can feel challenging, especially when money is tight.

Luckily, there is a foolproof trick for saving money without even thinking about it. It’s called automation.

How to Automate Your Emergency Fund Savings

One of the easiest ways to automate your emergency fund savings is to set up an automatic transfer on payday. Calculate how much you can save while covering essential bills like rent, food, and utilities. Then, set up an automatic transfer for that amount with your bank.

This process should be as simple as clicking a few buttons. Better yet, you likely will only have to do it once.

Another way to automate your savings is to talk to HR at your job. They should be able to split your paycheck so that a portion deposits into your checking account and a portion goes into your savings account.

Be prepared to provide HR with: 

• Your bank’s name and address
• The bank’s ABA routing number
• Your savings account number
• The amount or percentage of your paycheck that you want deposited into savings rather than your checking account

Once you set up these automatic transfers or deposits, you won’t have to worry about saving or feel tempted to keep the money in your checking account. Saving money will automatically happen without you having to think about it.

How Much Savings Should I Automate?

The answer to this question is not one size fits all. It is entirely dependent on your current expenses and income. However, the more you can automate, the faster you’ll reach your financial goals.

That said, you don’t want to overdo it. If a transfer to savings results in an overdraft fee, you will slow your progress toward achieving your goals.

Many financial experts recommend that your emergency fund be large enough to cover your expenses for three to six months. Others increased their recommendations after the pandemic, advising that people build emergency funds containing up to 12 months’ worth of expenses.

If that feels like an impossible goal, start with a smaller amount. For example, saving just $25 twice per month can net you an emergency fund of $600 after a year. With a couple of other budget tweaks, you could get your emergency fund up to $1,000 in a year without much effort. 

Can I Automate Other Savings Goals?

Once you successfully build your emergency fund, you can save for other goals, like a vacation or your child’s education. You can easily automate transfers or deposits towards these goals as well.

Payactiv users can also take advantage of the Goal-Based Saving feature, which allows them to allocate their savings into various buckets for different goals. 

Final Word

Automating your emergency fund savings can help you reach your goals faster and increase your chances of saving money. If you have extra money left over at the end of the month, you can make manual transfers in addition to the money automatically going toward your goals.

Whether you’re manually saving or automating it, making savings a habit can ensure your financial life is as stress-free as possible.

¹Goal-based saving is a set-aside account, and you will not receive interest or other earnings on the funds within the goal-based account.All content provided on Payactiv.com/financial-learning/ is for informational purposes only. Payactiv makes no representations as to the accuracy or completeness of any information on this site or found by following any link from this site. Payactiv will not be liable for any errors or omissions in this information nor for the availability of this information. Payactiv will not be liable for any losses, injuries, or damages from the display or use of this information.