Editor’s Note: This article was originally written about Digit, but they charge a monthly fee now. I suggest you use Dobot which works almost the exact same way, but without the fees. You can read my Dobot review here.
A few days ago, I was in the car with my wife picking up the kids and this song came on the radio. I turned to here and said, “I guess it’s time to wake up.” Fortunately, she got the joke right away.
October hits me in the back of the head like this song. Metaphorically, of course, because I’m still typing this article. It’s the start of the last quarter of the year. Everyone is in a rush to put up Halloween decorations, while I get advertisements from my local grocery store to plan my Thanksgiving through them. I bet some of the warehouse stores already have rolled out some of the Christmas stuff.
In other words, this song is going to happen soon. And if you celebrate another holiday that might be around the same time.
(I promise that this article won’t have reference any more song titles… or maybe not.)
Years ago, before credit cards, people turned to Christmas Clubs to save money for the gift-giving season. If you aren’t familiar with Christmas Clubs, I won’t hold it against you… they were before my time too. Here’s how Wikipedia describes them:
“The Christmas club is a savings program that was first offered by various banks in the United States during the Great Depression. The concept is that bank customers deposit a set amount of money each week into a special savings account, and receive the money back at the end of the year for Christmas shopping.”
I don’t know how much money you are you going to spend this Christmas, but the average is around $900. You could spend more or less, but can’t we agree that it’s best to put aside money now?
I’ve found that easiest way to do this is with a
Digit Dobot account. Regular readers know that I recommend EVERYONE get a Digit Dobot account. I even recommend personal finance bloggers get it. One said to me, “I save money all the time and I’m great with it. I don’t need that.” He ended up following my advice and saved around $4000 for an expensive international trip. He said he didn’t even notice that the money was being saved.
What is Digit?
Digit was a FREE service (it isn’t anymore) that squirrels away money from a savings or checking account. It analyzes your account balance, spending, upcoming income, and upcoming bills to figure out how much it can safely move to the Digit account. It does a little at a time so you don’t even notice it. You can always tell it to squirrel less, but I set it at the maximum squirrel rate. (If you think I’m trying to set the record for using squirrel as a verb in a paragraph you are correct.)
Digit accounts are bank backed, safe, FDIC insured, blah, blah, blah. It’s got Google Ventures and other big names as investors.
Perhaps the worst part of Digit is that it will take you 3-5 minutes of your day to set-up. I’m being sarcastic. The worst part is that you earn minimal interest on your money. There aren’t a lot of banks paying significant interest nowadays. I’m used to ignoring interest after years and years of receiving almost none from bank accounts.
I’ve had my Digit account since March or April of 2015 and I’ve only saved this much:
I should have waited until I got that “snowman” for the first digit, right? Oh well.
Keep in mind that I’m saving the maximum amount and my finances might are different than yours. You can customize it to save what works for you. That’s why I feel it will work for everyone. No one has given me a convincing argument NOT to sign up for a Digit account other than, “I’m comfortable with my savings process.” That’s fine, but I’d challenge the person to try something new. They might just find out it was better than their existing way of doing things. I did.
I also have withdrawn money from my Digit account. My car needed new brakes, so I simply sent off a text to withdraw the money and it was back in my account in a day or two. If I hadn’t set up Digit, there’s a real chance that I would have spent it.
Forced savings is one of the most powerful forces in personal finance.
My recommendation is to
Digit Dobot now so you’ll be prepared for the holidays.
I like the concept of digit, and considered it, but I subscribe to the waterfall theory. I would love for something to do this automatically, but alas I am too much of an outsider to get it done by my bank to program this.
I have 5 types of accounts: Checking, Savings, Capped (post tax) Retirement, Long Term (or tax deferred) Retirement, Short Term Investment.
So my money flows as follows:
• I get money from work and they take money out of my paycheck and put it in the long term retirement account (401k). I currently place 5% and get a 5% match from my company in there of my gross income. This bucket by definition can never get too full.
• All money flows in and out of the Checking account that I touch. This is where my net paycheck lands, checks are deposited, bills are payed, etc. This bucket can get too full, and if my balance gets above $10,000 (which I check the Saturday after a Friday Payday), the money floweth over to my Savings account.
• My Savings account is kept for things which are unforeseen or large expenses. For example the $5,000 I am spending on home repairs next week. However, on the 1st of every month, I review this account, and check the balance. If the balance is over $10,000 I move the amount over to my investment broker (Who houses all my investments outside my 401k).
• When that money arrives, I validate my usage in the buckets that I need to fill there. The first bucket that gets filled is the Capped retirement account (Roth IRA). I fill that up with the maximum that I can put in for the year ($5,500 for me this year).
• When the Roth account is maxxed and the money floweth over, I move it to my short term investment account (just a regular taxable brokerage account) and buy stocks/funds that align with my investment strategy and diversification goals.
So what does this method do for me? It means that I save approximately 15% of my income in retirement accounts, I have approximately $20,000 in cash on hand, and I invest the remaining amount in savings for longer term returns in the stock market.
Lazy Man says
That’s a great system. Rather than check the balance to be over $10,000, I just let Digit do it’s thing. It saves enough that my balance doesn’t get that high. (That might be more indicative of living off of blogging income than Digit’s saving algorithm.)
I guess I use my Digit account as a savings account that I don’t have to manually transfer money too. I plan on taking a chunk out of my Digit account and using it for my Roth IRA as well.
Mustard Seed Money says
Thanks for sharing about digit.
My credit card bill normally shows up on the 21st of the month and I have about a month to pay it. Since I pay virtually all my expenses with my credit card I know that any additional money can go into my savings account. So I basically am the manual version of digit.
I will definitely have to look into this to see if it makes more sense for digit to handle the transfers. Thanks for sharing!!!
I really like digit for vacation savings. It’s great because you don’t notice it. Our Thailand trip is paid for and we don’t have to worry about it.