One common piece of financial advice that experts like to throw around is to automate your savings. This is all fine and dandy, except people still aren’t doing it.
The average American savings rate is hovering at 5.7 percent, not the lowest it's ever been, but close. One of the reasons why is because people either a) hate saving because it feels restrictive or b) really feel like they just don’t have extra money to save.
This is where the financial tech industry comes in. In the last few years, people have come up with some amazing apps that are helping Americans automatically save and invest painlessly. Here are a few of my favorites:
Digit is a smartphone app that scans your checking account for any extra money you may have lying around and then automatically transfers it into a savings account.
Their algorithm sees how much money you make versus how much you need to pay your bills. From there, it will pick up a few bucks here and a few cents there to put into your Digit savings account. The idea is that it’s money you won’t know has gone missing.
In a little over a year, Digit has saved me almost $2,000 that would have sat in my checking account and gotten spent in some way.
Another cool thing about Digit is that all the commands are done via text. They send you a text each day with your account balance and they send you a periodic text that says how much you’ve saved with the app.
Acorns is similar to Digit in so far as it helps you save small amounts of extra money. The main difference is that it invests that money into index funds. To put how awesome this is into perspective, it was previously nearly impossible to get in the market with such a small amount of money.
How it works: You sign up for a free account and then link your checking account. From there, every time you use your checking account, Acorns will invest the amount of money it takes to get to the next dollar.
For example, let’s say you bought a pack of gum for $1.75. Acorns would then round to the nearest dollar and put 25 cents into your Acorns account. Once your “round ups” reach $5, Acorns will invest the money into an index fund you chose through their app.
Because I use credit cards to pay for everything in an effort to get points, it’s taken me a while to see a significant balance in my Acorns account. However, in about a year Acorns has rounded up $800 worth of spare change that is now being invested into an index fund.
Betterment is what is known as a robo-advisor. In other words, you can use it to automatically invest into index funds and save for retirement.
The reason Betterment is a painless way to save money comes down to their fee structure: Robo-advisors are generally cheaper than more traditional firms (trust me, I did the math). Additionally, you get some of the services a human advisor would provide automatically (i.e. tax loss harvesting and portfolio rebalancing).
The other reason I love Betterment is because it allows me to invest whatever extra money I have into Vanguard funds. With my previous institution, I could directly invest small amounts of money into my desired fund, I would have to wait until I had a few thousand dollars saved up.