I’ve been meaning to write more about this for a while, but J.D. Roth of Get Rich Slowly and author of Your Money: The Missing Manual beat me to it. I first wrote about this in my August 2009 newsletter and will repost that article on my blog.

In short, those who automate their savings by setting up automatic transfers have two ways to do this. The most common is to deposit income into their checking account and have a set amount automatically transferred to their savings account. This works well when you adjust your transfer amount as your income increases.

But as consumers, the natural result of an increase in income is to inflate our lifestyles. Think about it. Is the first thought you have after receiving a raise: “I have more money to spend” or “I have more money to save?” You may want to do both, and you can, but which is most likely to be the default.

The solution is to automate saving the other way. Deposit income into your savings account and set up an automate transfer to checking. You still have to adjust the amount with inflating expenses, but your savings will inflate automatically.

Which one are you more likely to inflate? Your savings transfer because you should or your expenses transfer because you must?

Read J.D.’s post here.

I was part of the Creative Team for Your Money: The Missing Manual as a technical reviewer. I receive no compensation for marketing the book or for book sales.