How Automating Your Finances Can Grow Your Savings Account

As we move further into the 21st century, many people believe we’re a culture slowly becoming accustomed to instant gratification. However, while many naysayers claim younger generations are constantly craving convenient and digitally compatible services, there are many benefits to this new trend. We now have easier ways of managing our day-to-day lives, thanks to the way technology is used in our everyday routines.

These conveniences require less work due to mobile apps and smartphones, allowing us to prioritize and focus our attention on more fulfilling tasks through the touch of a button.

This new, digitally driven approach to life has many people are wondering if there are ways to manage their finances in a similar way. Historically, traditional finance sectors, such as investment and banking, have often had a high learning curve, requiring years of study and dedication to the field to completely understand them. But not everyone can allocate large amounts of their time and resources to grasping their finances. This has led to high fees and a general misunderstanding of cash management for many people. 

However, with personal finance information instantly available online, many people are finding it much easier to take control of their budget. Automatic financial planning options are being offered to cater to this up and coming desire for a paperless approach to finance, allowing people to let their money grow on its own, without having to spend time making investment decisions or transfer finances between accounts.

Let’s take a look at the many options available for automatic finances that you should start taking advantage of to grow your savings and personal net worth.

Online Banking

Out of all the financial institutions, banking has traditionally gotten the short end of the stick in terms of reputation. Because banking is often associated with high fees and interest rates, many are left feeling that a bank’s only goal is to earn as much money off of them as possible. 

However, new companies in the online banking space are using their low overhead costs to provide no-fee banking to their user base while also providing many unique products. Many of these features are now allowing users to automate their finances and grow their savings on their mobile devices.

Round-up savings, for example, collect the leftover change from every purchase an individual has made and moves it into a savings account. While most users probably won’t notice a few cents moved from their checking accounts here and there, they will see a huge impact on their savings over a long period of time. 

In a similar way, automatic savings accounts that are offered by online banks allow users to choose a certain percentage of their paycheck, usually around 10%-20%, to contribute towards their savings account monthly or annually. Many are utilizing this feature to invest small amounts in stocks every month, utilizing the benefits of long-term compounding to slowly grow their wealth.  

Index Fund Investing

Historically, investment has been associated with a high amount of industry jargon and complex financial analytics that have forced many people who want to invest in the stock market to spend hours researching the best stocks to buy.

The only way to mitigate this time-consuming task would be to work with financial planners or invest in high-fee actively managed mutual funds, which can both be very costly options.

Most actively managed portfolios fail to “beat the market”, despite the fees being paid for them and the highly trained investors managing them. Even when they do end up beating the market, the fees being paid often eat into the total gains. 

This is where index funds come into play. While mutual funds are managed by investors trying to beat the market, the mindset behind a mutual fund is “if you can’t beat them, join them”; essentially, an index fund is automatically spreading your investment across the entire market, rather than specific stocks, in order to maximize profit. These stocks require little maintenance as well, allowing them to have much lower fees than mutual funds, giving your portfolio more time to grow long-term.

Overall, the major benefits of these investment types are not only their low overhead costs but their hands-off approach to investing, allowing those without much financial experience to become savvy investors.

Passive Income

As opposed to earning money from working a 9-to-5 job, as is the most common way to earn money, passive income is a way of utilizing your money to work for you, essentially allowing you to earn money automatically in your sleep.

To the uninitiated, passive income can sound like a “get rich quick” scam. However, there are actually many safe and legitimate ways of earning money passively. One of the more common types of passive income investing comes in the form of high dividend stocks. While many stocks offer dividends, small payments made quarterly to shareholders, certain stocks offer high dividend percentages. 

This means that if someone was to invest $1,000 in a stock producing a 5% dividend annually, they would earn $50 a year. While this may not seem like a lot, when scaled dividend investing can earn investors tens of thousands of dollars a year. After all, if over a long period of time, an investor has $1,000,000 put aside in 5% dividend-yielding stocks, they could be making $50,000 a year with very little effort. 

Overall, there are many great options on the market today that you can utilize to automate your finances and watch your savings grow. If you’re looking for ways to start making the most of your money, consider trying out some of these options listed and test out the overall impact it has on your finances.