Automating savings.

In plain English

Automating savings means scheduling the transfer in advance so the decision to save is made one time instead of being made again by hand on every single payday. The money leaves on a set date, usually right after pay arrives, and lands in an account that is not the spending account. This works with two known biases at the same time: it removes the repeated choice that present bias distorts, and it turns saving into the default that inertia protects. The main failure mode is a transfer that overdraws the checking account, which is why the date and amount matter as much as the setup.

01Why it matters

Saving what is left at the end of the month depends on nothing going wrong, while automating moves the saving to the front and makes the spending absorb the variation.

02The math, step by step

Say 400 dollars is transferred the day after each payday, 24 times a year for a semimonthly schedule, or 9,600 dollars a year. At 6 percent for 20 years that is roughly 370,000 dollars, without a single monthly decision to save.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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