The Problem With Automatic Savings


Automatic saving is great, but without a budget it’s easier for your money to “leak” out of your accounts.

Jane Bryant Quinn spoke to the graduates of the Niagara County Community College and gave a few nuggets of great advice (and one I totally disagree with).

The gist of her speech was to keep things simple.

“You can set [things] up and get on with your life, because who wants to think about money all the time? I don’t.”

She’s talking about automatic investments here. I couldn’t agree more. I find it funny that she says she doesn’t want to think about money all the time – being the financial columnist for the Washington Post.

I have to admit though that I do feel the same way. I’m not really big on spending a lot of time with my money. I guess that’s where the whole YNAB idea came from in the first place. The trick with money is to make your life easier, not more difficult!

Keeping it simple will also most likely save you money:

“I run my money very simply,” she said. “From experience, I’ve found complicated investments only benefit brokers, insurance agents and bankers.”

This is a great point. Many (good) financial advisors will offer the same advice. If you don’t understand the investment then it’s not a good investment for you. If you can’t explain the investment to your teenager and have them understand it pretty quickly, it might not be a good investment. Keep things simple!

A now I need to take issue with Ms. Quinn’s mockery of the budgeting process 🙂

“I don’t do a budget,” she said. “You’re budgeting in order to get something, and if that’s savings, then the automatic savings plan [does the same thing].”

Hardly! You’re not just budgeting to “get something” you’re also budgeting to not lose things through the normal process of money leakage that happens to even the best of us.

A budget is a plan for your money, a value compass – and that plan needs to be revised on a regular (I suggest monthly) basis. Ms. Quinn admits to having a plan – she just says to have it set up automatically. I think she’s leaving the graduates lacking something important. When you’re actively budgeting, you make your money work harder. Having a laissez-faire approach to what you’re doing with your money leaves room for money leakage.

Automatic savings addresses a large portion of this because you know those dollars are doing their job, but how do you know if your grocery bill isn’t becoming pretty exorbitant, or if you couldn’t possibly get a better deal on your car insurance? It’s good to be aware of these things so you can make sure you’re maximizing your dollars.