One of the big tenets in the financial independence community is to live off of only a portion of your income and save the rest. The hard part for many people is the savings portion. Going into your bank account and doing transfers of, say, 20% or more of your salary can be pretty painful to some. What worked best for me was setting everything to auto-transfers and not thinking about it.
The way I see it, when you automate your savings transfers, it feels like you never had the money to begin with. Think about it, on your paycheck you get paid a certain amount of money, but taxes and other things get taken out before you ever get to see it. The difference here is that if you decide to pay yourself instead of only paying the government, you can finally begin to see your savings grow.
Mentally, what is in your checking account tends to be how much money you think you have to operate with. You can even take this a step further and have a separate bank or investment account that you transfer savings into so it will be out of sight and out of mind. When you think you have less, you in turn spend less.
Let’s say your paycheck is about $1600/biweekly (loosely based off 2016 Median Household Income). Wisdom from one of my favorite books, The Richest Man in Babylon, will tell you to save 20% of your income. Now we could break that down to include retirement savings as well, but for purposes of this demonstration we will say that the 20% will solely be in money going into your savings account. This comes out to $320 per paycheck. $320 might be one of the largest bills that you have after rent or a mortgage so the mental pain of manually taking that money out of your account may prevent you from doing it. That’s why I would suggest making it automatic; then you will never really notice it leaving. I schedule mine to transfer the day after my paycheck hits. I’ll probably switch to a same-day transfer in the future though, but that could overdraft some people who are living paycheck to paycheck.
This practice was one of the key reasons that I was able to still develop my savings account while living on a pharmacy resident’s salary when I was fresh out of school.
What methods are you using to automate your savings?