June 30, 2022

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Automating your savings will help you save more—here’s the psychological reason why – CNBC

Select’s editorial team works independently to review financial products and write articles we thi.......

Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.

You might have noticed that almost every financial advisor and money expert has more or less the same piece of advice for building wealth and stashing away more money faster: automate your savings. While this trick for saving money may not be new, it really works — and it’s thanks to psychology.

When it comes to managing your personal finances, automation is more common than you might think. We see it at work when a percentage of our paychecks is automatically deposited into our employer-sponsored 401(k) accounts. A portion of our pre-tax money gets taken out of our paycheck and invested for retirement — without needing to manually move money into the account.

But if we had to make the efforts of deciding how much of each paycheck should go toward our 401(k) for every single pay cycle and then making the transfer, how many people would continuously contribute and how many would save more irregularly?

As it stands, only half of Americans participate in a workplace retirement plan. And automation plays such a significant role in saving money that, according to MarketWatch, Congress wants to propose legislation that would require companies to automatically enroll employees in a retirement savings plan and have 3% of …….

Source: https://www.cnbc.com/select/present-bias-why-automating-your-savings-works/