< shift/library / financial

Automated Savings (Pay Yourself First)

financial · easy · 30 minutes for initial setup; 5 minutes quarterly to increase amounts

What is Automated Savings (Pay Yourself First)?

Set up automatic transfers from checking to savings/investment accounts on payday, before you have a chance to spend the money. Leverages the 'set it and forget it' principle of behavioral design.

Is there evidence for it?

EVIDENCEstrong

How do you do Automated Savings (Pay Yourself First)?

  1. 1.Determine your target savings rate (start with 10-20%, increase by 1% each month)
  2. 2.Open a separate high-yield savings account (out of sight, out of mind) if you don't have one
  3. 3.Set up automatic transfers timed to the day after payday
  4. 4.Create separate automatic transfers for different goals: emergency fund, retirement, short-term goals
  5. 5.Increase the automated amount by 1% every quarter or whenever you get a raise (save the raise)

How long does it take?

30 minutes for initial setup; 5 minutes quarterly to increase amounts.

Is it hard to start?

easy.

Source: Richard Thaler & Cass Sunstein (Nudge, 2008). Thaler's 'Save More Tomorrow' program increased savings rates from 3.5% to 13.6% over four pay raises using automatic escalation. One of the most validated behavioral interventions in economics.
automation · savings · behavioral-design · default · investing · painless
> find what fits you

Related in financial

Envelope Budgeting SystemA zero-based budgeting method where every dollar of income is assigned a specific job before being spent...Emergency Fund ProtocolBuilding a dedicated cash reserve of 3-6 months of essential living expenses to absorb financial shocks...Debt Avalanche MethodPay off debts from highest interest rate to lowest, minimizing total interest paid over time. Mathematically...50/30/20 Budget RuleAllocate after-tax income into three buckets: 50% for needs (housing, food, insurance), 30% for wants...The Latte FactorA micro-spending awareness practice that identifies small, habitual, often unconscious daily expenditures...Salary Negotiation ProtocolA systematic approach to negotiating higher compensation at your current job or when receiving a new offer...

> everything in financial

This is one entry from the library Shift matches against. It is general information, not advice about you, and nothing on this page came from anyone's conversation.