Fast and Easy Way to Start an Emergency Fund: This Direct Deposit Trick

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We spend a lot of time here at The Penny Hoarder telling you to automate your savings. So you may have transfers scheduled from checking to savings each month, or a fancy app that filters the change from your debit purchases into a savings account.

But the easiest way to guarantee you save on a regular basis — whether it’s to put money away for vacation or build an emergency fund — may be tucked between the pages of your employee handbook at work. Are you using your company’s direct deposit to send money toward your savings?

An online survey conducted in 2015 by NACHA, the Electronic Payments Association, found that 82% of the 2,000 workers surveyed used direct deposit. But among those users, only 24% split their direct deposit between two or more accounts.

Split deposit allows you to send a fixed amount or a percentage of your paycheck to a second account, whether it’s a savings account or an investment account — or even just another checking account.

NACHA found the most common use for split deposits was to build an emergency fund (83%).

Wondering why you’d ever want to revisit your employer’s onboarding paperwork? What if we told you it could make your ability to save almost foolproof?

Why You Should Use Direct Deposit to Save

Splitting your direct deposit is one personal finance action you can truly set and forget.

“It takes advantage of the principle of inertia,” said Diane Harris, former editor of Money magazine, by phone. “We have good intentions about saving, but if we have to make a decision every time we get a paycheck, it’s pretty rare we’re going to do that.”

Harris is currently editor-in-chief of Considerable, a personal finance site for people in their 50s and 60s. She said once you set up direct deposit, it’s a solid bet your savings will continue indefinitely. “Once you’ve set it up, it’s going to take an earthquake to undo it,” she said.

All it takes is the time to ask your company’s HR department for new direct deposit forms. You may even be able to make the switch online. While some employers will request a voided check, others may allow you to make the switch without it if you have your routing and account numbers handy.

If you only bank online (we get it; checks are so last century), you can usually find your account numbers after logging in to your bank’s online portal.

Get paid a different amount each pay period based on your hours? You may want to set aside a percentage of your take-home pay to be directly deposited into a savings account. If you get the same amount each pay period, a fixed amount may work for you.

Harris recommends taking the action one step further: Name the savings account you’re shifting some of your direct deposit into, whether it’s Rainy Day Fund or Vacation or Cocktails With Friends. “The act of naming it gives it a purpose,” she said.

“We have mental buckets in our brain about saving and about uses for our money,” she said. “If you give it a name and a purpose, your brain will treat it as off limits.”

Lisa Rowan is a personal finance expert and senior writer at The Penny Hoarder.