Use ICICI iWish to automate savings

iWish is an flexible Recurring Deposit(RD) Facility by ICICI Bank. It allows you to save money when and as you have it - either manually, through automated Standing Instructions, or a combination of both. Unlike a regular RD there are no penalties for skipping a payment. You create Recurring Deposits with financial targets and can name them in easy to understand names like "Saving for Car Downpayment". Manish at JagoInvestor has written an excellent detailed post on its features including the social motivation aspect of it.

However, in this post I want to focus on the one aspect of this facility that I find the most useful - the ability to use it as a tool to automate saving. That it helps earn a higher rate of interest than a savings account, is just icing on the cake!

Segment your savings

I first came across the idea of segmenting your money on Ramit Sethi's blog. It is an idea that is closed linked with the entire concept of automating your personal finances. In simple words it refers to actually segregating your saved money into different accounts/buckets using sub-accounts(as Ramit recommends) or some other similar concept. In our grandmother's time people used to do it using envelops to separate the cash budgeted for, or being saved for, a particular use or goal. I found I could do similar things with the iWish facility of ICICI Bank in India and with much lesser hassles than my grandmother's system.

The Why?

Why would you want to separate the money into different buckets(electronic ones in this case) in the first place? Well it helps take money which already has a job to perform, away from your general spending money lying in the savings account. This gives you the peace of mind that the money which you need(i.e to pay bills, to save for that holiday) has already been saved and what remains is now free for you to spend. By making it a little difficult to reach the money being saved for a goal, it also keeps you a little more immune to impulse decisions on buying things that are less important than your goals.

When I started saving I used a simple system of having two bank accounts to achieve this segregation. Every month my salary would come to my savings account in ICICI Bank. From there a part of it would get transferred to my HDFC savings account, which included the sum total of all the money I wanted to save. But this created the further hassle of tracking how much of the saved money was for which goal. After a few months it became too cumbersome and time consuming to track properly.

How ICICI iWish helped me improve my savings

So this was my situation - I had decided on my major goals for short term saving, namely(not mentioning the investing goals):

• Saving for Yearly Expenses like insurance premiums, magazine subscriptions etc
• Saving for my Yearly Holiday
• Saving for my Rainy Day Fund
• Saving for Car Downpayment

This is how I implemented them using iWish.

First, I gave a priority to each of the goals above as per their urgency and importance. It worked out to something like this:

1. Saving for Emergency Fund
2. Saving for Rainy Day Fund
3. Saving for Yearly Expenses
4. Saving for Yearly Holiday
5. Saving for Car Downpayment

Second, I made goals in iWish for each of my short term savings Goals(that's what each RD in iWish is called), as listed above. I included the financial targets for each along with a target duration and did the following:

• While setting up the Goals in iWish I used the priority order to decide on whether to automate on Standing Instructions(SI) or not. 
• The first 3 goals above are high priority goals and an absolute must to achieve. So I put them all on automatic SI as per the amounts I intended to save in a year. 
• For the remaining I saw my budget and saw that I had say Rs 5,000 remaining for them. So I split the amount into two and put Rs 2,500 on each on SI. This was not enough to reach the target amounts and I needed to save more every month to be able to fulfill the goals. This served as added motivation to remind me each month when the SI of Rs 2,500 hit my savings account each month to save more in the month and tranfer the saved amount to the two Goals at the end of the month. This reminder effect that the SI has when the debit SMS reaches my mobile phone is why I split the remaining amount of Rs 5,000 and did not put it all in one Goal. 

For future I would appreciate if ICICI provides an ability to set a reminder with the Goals that one intends to service manually, but for now I found this the most effective way in which the Goals remain alive (some amount goes to them without my intervention) as well as I'm reminded of them(nothing better than a reminder than money going out of the bank!).

The effect of this on my financial life

I now maintain just one excel sheet which has a list of all my yearly expenses. It adds up them up and shows the monthly saving I need to achieve the target amount. Every time I add another yearly expenditure, I just add it to the Excel sheet and update the Standing Instruction for the Goal.

As for my other Goals, well, the most important ones get met automatically with the monthly deposits from my savings account. And into the others I put in every penny I save, or happen to get in other ways like yearly bonuses.

In total I now spend less than 15 minutes in a month to review my savings and keep on track to meet all my financial goals. Any sudden windfalls get immediately saved in a higher interest rate account and all savings give me that additional mental push whenever I deposit them manually and see the completion bar on a particular iWish account inch a little further.