My Grandpa and I, circa 1987
It’s the New Year! That time for setting laughably ambitious goals we’ll forget about in two weeks.
If we're being honest, New Year’s resolutions are trash. Every year I make one and every year I fail. Despite that admission, I do have a resolution for 2017. It’s only indirectly related to finance - I’m quitting meat and moving toward a plant based diet. So far, so meh.
Given that resolutions are a lost cause, I’d like to offer you an out for 2017. This is a one-and-done money hack that has staying power, no matter how lazy or feckless you’ll be over the next 12 months. It’s a little something I learned from the greatest penny pincher who ever lived - my Grandpa Brady.
Image courtesy of imgur.com
The Hack: Automatic Deposits
Resolving to improve your finances is as simple as setting up an automatic deposit. It's really, really easy. You go onto your banking website, or use your banking app, and arrange for a deposit to go directly to your savings (or another account that you don’t use for regular spending) every time you receive a paycheck.
Setting up automatic deposits is like killing two birds with just the one stone.
First, it’s a budgeting cheat. It forces you to spend less by diverting dollars away from your little hands (looking at you,Trump) before you can gamble them all away.
Second, it helps you build the habit of of using part of your income as a safety net. Setting money aside for emergencies and long-term goals should be a life-long habit that starts now.
How much should I deposit?
In the 1950’s my Grandpa started depositing $25 a month into his savings. Despite my Grandma’s argument that they didn’t have the dough to spare, he insisted on doing it anyway (yay for gender equality). He eventually increased the amount, and kept doing that for the rest of his life. When Grandpa Brady passed away a few years ago some of that savings came to me. Pour one out for Grandpa Brady.
The amount you can save depends on your situation. I suggest choosing what you're comfortable with and then pushing yourself to go with a slightly higher figure. Even if it's just $10 per paycheck, at least it's a start. Maybe you'll increase the amount when you pay off your student loan or you get a promotion.
Grandma and Grandpa Brady, 1964. I see you with that red lipstick Grandma!
What if I don’t have a savings account?
Set one up now! Having no savings is likely putting you in a very vulnerable position. Try cutting back on dining out or other non-necessities, even if it's just for a few months while you jump-start your account. You’ll be glad you set that cash aside when your laptop crashes, you lose your phone, you break your clavicle in a tandem yoga accident, or some other very normal catastrophe occurs in 2017.
What if I already have money in savings?
Good for you champ! I recommend keeping roughly 3-6 months worth of your regular living expenses in savings. If you've already accomplished that goal then consider moving your automatic deposit into a longer term account like a 401(k). We'll talk more about that in future blog posts.
Photo courtesy of heavy.com
Managing your money right almost always requires both discipline and patience. Automatic deposits are one of the few ways to make it easier, because they remove the element of willpower. So for 2017, f*ck spending $400 on an annual gym membership and only going to the gym three times. Automatic deposits are the key to your fool-proof resolution.
Here’s to going vegetarian in 2018!