David Bach hit the nail on the head when he emphasized the importance of making your road to riches as automatic as possible in his book The Automatic Millionaire. Savings, of coarse, would fall under the umbrella of ‘things to make automatic’ in anyone’s life. The less effort you have to put in to your new savings program, the more likely you are to see it through by default. I would guess that the majority of people who have accounts with the various commercial banks that are out there manage their accounts online to some extent, but the fact that you carry around a debit card from the institution and have access to the different branches makes it easier to give in to spending temptations. This is where strictly online banking can play a valuable role.
Recently, a friend of mine asked me for some help with a new savings program she was trying to establish. She wasn’t quite sure if the fund would be for emergencies, vacations, or gift giving but the important thing is that she was ready to get the ball rolling right away. I had seen lots of advertisements around for HSBC’s online savings accounts and had done a little research on it and that was the best suggestion I could give her (although any reputable online bank probably would have been just fine – just be sure to do your homework). I assisted her with the account setup and I told her to make sure that she only open up a savings account; not checking. The great thing about a savings account is that it puts obstacles in front of you when you want to access your money. For instance, you cannot go to the mall and purchase clothing directly using an ATM card that only has a savings account linked to it. More often than not, you have the have a card that is linked to a checking account and bears a Visa or MasterCard logo.
Towards the end of the account application, she was prompted with a question about whether or not she would like an ATM card to go along with her account. I told her that she could give herself two options here: get the card and give it to someone you trust to hold onto (as to prevent any temptations), or don’t get it at all. She opted for the latter and I honestly believe that was the best choice because now, it is increasingly difficult to tap into those reserve funds. The fact that HSBC is a “clicks-and-mortar” company (functions both online and through branches) makes it easier for you to find an excuse to withdraw money using your ATM card, so I told her that it is important to take all precautions necessary to protect her money from herself.
The last vital step in the registration process included setting up automatic payments from her current checking account at Chase to her new savings account on a consistent monthly basis. Since her means only allow her to make a $50.00 contribution per month, she committed to doing so on the first of every month and the beautiful thing is, it will be effortless for her. Her only responsibility is to make sure that she has $50.00 in available funds at the beginning of the month in her Chase checking account; the banks will take care of the rest.
As an extra bit of advice, I challenged her to keep her eyes off of the account for an entire 12 months. That means no peaking at monthly statements and no online or telephone inquiries about the account for an entire year (perhaps you can have someone you trust take a look at the statements just to make sure all of the transactions are going through). It can take a great amount of will power to do this but I’m confident that looking at a $600.00 balance after 12 months will have a more profound affect on her than monitoring the $50.00 contributions each month.
So for those of you who are ready to jump start a savings program that takes no effort and actually works, do your research on the many online savings accounts that are available out there and take the plunge. You certainly won’t regret it.