In trying to help people, especially college students, get a grip on their personal financial situation, one of my pet peeves is what I refer to as “unconscious spending”. Unconscious spending is whenever we allow our savings and investments to be eroded by bank and other fees. Examples include account maintenance fees, ATM fees, late payment and other penalties and, my personal favorite: overdraft and bounced check fees. Recent legislation has placed additional restrictions on these fees, so you can bet that the banks will be looking to make up that lost revenue with new or additional fees for other banking services.
So what can we do to reduce or eliminate unconscious spending? In addition to the obvious (don’t overdraft your account, avoid out-of-network ATM’s, etc.), I suggest considering “unconscious savings”. One way your bank (or brokerage firm) can really help you improve your financial situation is to sign up for an automatic savings plan. How does it work? Simple. You direct the bank to transfer any amount you specify from your checking account to your savings each month. If you use direct deposit from your employer, when the bank receives the deposit, the amount you specified is placed into savings and the balance goes into your checking account. Painless, automatic and you don’t need to lift a finger.
Virtually all major commercial banks and investment banks offer these types of plans. I am listing just a few here, including Bank of America, Wells Fargo, Chase and Charles Schwab, but your current bank likely offers similar options. The good news is that these automatic transfer programs are typically free, provided you maintain the specified minimum balance and make at least one transfer each month.
So whether you can afford $20 or $50 or $100 or more, taking a few minutes to set up an automatic savings plan is a great start toward building your emergency fund and improving your personal financial position.