Should You Auto-Enroll Your Savings?

If you find it a bit difficult to save money, you're not alone.  According to the American Psychological Association’s 2014 Stress in America survey, money is routinely among the top sources of stress for Americans year over year. Perhaps an easier way to save money is by not thinking about it at all.

 

Your Brain Doesn't Like to Save

Saving money can be a stressful task or very easy, depending on how it's approached. If you ask someone to set aside 20 percent of her income each month, she is most likely to respond that it's too difficult, if not impossible.

 

Ask the same person if she could live on 80 percent of her income, however, and the answer is usually yes. This is something the government has known for decades. It's why they deduct taxes directly from your paycheck rather than leave it to you to set the money aside yourself.

 

Create Your Own Payroll Deduction

Auto-enrolling in a savings program is one of the easiest, most pain-free ways to start saving money. It's a good way to make sure you pay yourself first each week, before the bank, the cable company or the phone company.

 

Ask your employer about enrolling in a retirement savings plan so the money comes directly out of your paycheck. If your employer doesn't offer such a plan, he may be willing to send a portion of your pay to a savings account through direct deposit. If that's not an option, talk to your bank about having a set amount transferred from your main bank account to a separate savings account.

 

Start Small and Build Up

Ideally, you should set aside 20 to 30 percent of your income for savings. But remember, the ratio doesn't work for everyone and it depends on your age and circumstances.

 

This is money that goes toward your future, like your retirement. If you don't feel you can afford to start with such a high percentage, begin at 10 percent or even as little as 2 percent. You can increase the percentage by a few points after a few months to get to a healthier range.

 

Does Auto-Enrolling Really Work?

 

To see this method being put into practice, look no further than across the pond. Auto-enrolling employees in savings plans has been so effective in the U.K., they're actually making it the law.

 

Instead of asking employees if they want to have payroll deductions, employers must enroll them automatically. If employees don't want to participate, they can sign an opt-out form. As the program was being phased in by October 2015, only one in 10 employees were opting out of the program.

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