The Importance of Direct Deposit
Feb 15th, 2008 by Nut
Sun has a nice post discussing the importance of direct deposit. Direct deposit isn’t a must when it comes to keeping a budget and saving money, but it sure makes it a lot easier.
One of the first tenets you’ll hear repeated over and over in personal finance is “make it automatic.” That means setting up a system where you have to do as little as possible on a month to month basis after you set it up. If you don’t have direct deposit this becomes much, much harder—but not impossible.
Saving isn’t automatic and you can’t take it out of your paycheck before you spend it (pay yourself first) because you’re depositing that amount—it’s real and it’s in front of your face, which means you may be tempted to spend it. Or you may just forget about it. Either way it isn’t going to march over to your high-yield savings account on its own.
I transfer a monthly amount from my checking account (where direct deposit drops my paycheck) over to my ING Account. M, however, doesn’t have direct deposit, so she has to go through hoops to get this done. Here are my tips for those of you that don’t have direct deposit:
- Calculate your paycheck after savings: Say you want to save $200/month—calculate how much you make after deducting that amount and get it into your head that that’s your salary. That’s how much money you have to play with, the rest you’ll shave off later. Base your budget off of that. If you get paid weekly you’ll need to shave off $50/check.
- Make it a routine: If you get paid every Friday, then make it a habit of going to the bank every Friday and depositing your check—make it automatic. Pick out another day (when the check has cleared) and shave off whatever amount “isn’t yours.” In our example, that’s $50. Send that money straight to your ING Account.
- Rinse, repeat: Probably the toughest part of the plan is sticking to it week in and week out. If you find it impossible, hassle your employer to get direct deposit set up. If you’re a small operation it may not happen, but you won’t know until you ask.
Any other tips out there for the non DDers?
Open an ING account and get a $25 bonus!
Who Killed the Electric Car?
I would venture to say that most who do not have direct deposity lack the self-discipline to divert money to savings (there are exceptions). In fact, I know I would be tempted to hold on to that cash once I had it in my hand - when it comes off the top and it directly deposited (or transferred) in my savings account I never see it and therefore don’t miss it.
These are great tips. I like to make everything as automatic as possible. Then I can just check it now and again. I set up bill pay for all my bills as well. It’s great.
Lisa
[...] week I wrote about the importance of direct deposit and this past week I got a good firsthand experience on why paying yourself first is so important. [...]