Systematic Savings

Systematic Saving to Establish or Increase Cash Reserve

What is systematic saving?

As its name implies, systematic saving is the process of saving a portion of income on a regular basis. It is important because establishing or increasing a cash reserve should be the first savings objective of a financial plan. Further, most people do not save on any systematic or regular basis, so the plan's long-term success is likely to benefit from early development of this excellent habit.

Pay yourself first

For those who do not yet have financial security and independence, systematic saving and building a cash reserve are the first steps (managing debt is a close second, except in dire situations). You should look at systematic saving as paying yourself before you are tempted to spend it elsewhere. Money spent is money that usually must be replaced by working for it. As the adage goes, a penny saved is a penny earned.

The benefits of automatic savings

With an automatic savings plan, you formally arrange with an employer or financial institution to set aside periodically a specified amount of money from your income or an existing account. This is different from simply planning to save regularly on your own, which requires that you take action on your own to set aside the specified amount each time. Automatic plans are preferable because the transactions are made by others and the temptation to divert funds (out of sight, out of mind) is reduced. However, planning for periodic savings, which is often part of a budgeting process, is better than not saving at all, especially if the routine savings amount is viewed as a mandatory bill payment. Automatic savings also is more convenient, since it's handled by others.