When it comes to automated saving, experts, financial literacy sites, and blogs tout it as the most effective way to pay your bills on time and see your interests compound. Is this approach to personal finances always beneficial? Let’s take a closer look at the pros and cons of automated savings.Tip: Some situations call for a loan. If you find yourself at a financial impasse and need a quick financial boost, check out the online loan app, a platform tailor-made for loaners in search of optimal loan options.
What Are Automated Savings?
Automated saving is an approach to saving that prioritizes automatic transfers to your savings accounts at a particular time and allows you to cover your bills, debts, and other transfers with the least effort on your part. In essence, it is the complete opposite of the manual, do-it-yourself approach that involves a lot of counting, scheduling, and money management to meet the deadlines.
Why Should You Embrace Automated Savings?
1. Use compounding to its fullest
Compounding is a process that involves building long-term wealth with the help of the accumulated interest from your accounts over time. By automating your savings, you will create a sufficient financial base to use compounding to your benefit. Besides, the earlier you start to automate your savings, the more the interest will grow. Compounding is one of the most efficient perks of savings automation.
2. Meet the deadlines
Have you ever forgotten to pay your utilities on time? Then you are not alone. Unfortunately, missed deadlines often come with additional fees. To avoid these issues, enable monthly automatic transfers to cover your bill on time. This foolproof approach will allow you to establish consistency that won’t require your involvement.
3. Improve your financial habits
By enabling automated savings, you end up with more money in your accounts but less money to spend on everyday stuff. If you struggle with budgeting, this approach will automatically set spending limits and help improve your financial habits.
4. Increase the accuracy
Automated savings allow you to avoid human error. After all, when making financial transactions manually, it is easy to type in the wrong numbers, which can potentially cost a hefty sum.
5. Meet your savings goals
Whether you plan to buy a house, save for college, or go on vacation, it’s crucial to set short- and long-term financial goals. Automated savings are one of the most efficient ways to meet financial objectives.
Drawbacks of Automatic Savings
1. Your salary and bills are highly irregular
If you are a freelancer or have multiple streams of highly irregular income, automated savings can be tricky. For example, if you lack money to cover your bills, it is preferable to deal with your money manually.
2. There is a high risk of overdrafts
Another potential drawback is the risk of overdrafts if your account balance is low. Typically, this will lead to additional fees. That’s why it is pivotal to check your accounts and avoid automating every aspect of your financial life.
To sum up, automated saving is an approach to personal finances with more positives than negatives. By automating your savings, you will improve your monetary habits, meet deadlines, benefit from compounding, and see your wealth grow.
