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Make meaningful improvements to your finances every week.

ethan-bloch

Automate Saving Using Digit

 

Want to save money but don’t want to feel it in your lifestyle?  Automate saving using Digit.

We interview Ethan Bloch the CEO of Digit to learn how to automate saving.

Pay Yourself First

Probably the most important tenet of personal finance is pay yourself first. That means that putting money into savings should always be a priority. Get your essential bills paid and then pay yourself before you start spending on non-essentials.

That can be easier said than done. You might have every intention of saving, but at the end of the month, there is no money left over. Or you might be a little too gungho like many of us are when we start to try to improve some aspect of our lives.

You throw so much money into savings that you come up short in paying your essential bills and have to transfer the money back to your checking account. If that sounds familiar, there is a new service that can help.

What is Digit?

Digit is an automated saving service that helps you save small amounts of money at a time. It makes paying yourself first easy. Ethan and his partners started the company because they decided to design a product they wished already existed. (We have heard this more than once when we interview tech company founders).

How Digit Works

To use the service, you connect it to your checking account. More than 2,500 banks and credit unions in the US are supported, so yours is likely one of them. This allows monitoring of your checking account. Over time, it analyzes things like when you get paid, upcoming bills, recent spending patterns and your checking account balance.

When it sees some money that you aren’t using according to your regular habits, it socks that money away by transferring it to your Digit account. The average transfer is $23 every three days.

Money is transferred from your checking account to your Digit account every two to three days. The money is stored in a custodial account that is FDIC insured for up to $250,000.

This might make you nervous. What if they transfer money that you had intended to use to pay your rent? That doesn’t happen.The algorithm knows your earning and spending patterns; it doesn’t transfer money that you are going to need to pay a regular expense. By looking at the patterns in your checking account, only amounts of money you won’t miss are transferred.

But what if it does happen? There is a no overdraft guarantee. If your account is overdrafted, they will cover the fee up to two times per customer.

If you’re still nervous, you can text the word “Minimum” to Digit and set a number. If your checking account balance goes below that number, no savings will be harvested.

You can manually transfer money to your account anytime you want by texting the word “Save” followed by the amount you want transferred.

You can create different goals within the app. If you want to save for a vacation or a new phone, you can direct money into those goals. The general pot of money that makes up your account is your “Rainy Day Fund.”

If you need the money back in your checking account, you can send a text message to Digit. The money will be transferred back into your checking account the following business day.

Digit doesn’t charge you a fee so how do they make money? They collect the interest on the money held in each account.

Signing Up

Signing up for an account is quick and easy.

-Create an account with your name, email address, create a username and password.

-Enter your phone number. If anyone out there still uses a landline, don’t provide that number. You and Digit will communicate primarily via text messages so you need to provide a cell phone number.

-You will receive a confirmation code via text immediately. Enter that code.

-Choose your bank by clicking on its logo.

-Provide your bank account username and password.

-If you have more than one account with that bank, choose the one you want to use. Be sure to use the account that has the most activity which will likely be your checking account.

That’s it! You will see your first transfer into Digit within 2-3 days. You will also get a referral link. You get  $5 for each person you refer.

Digit Review

Digit is a neat concept. It’s like Acorns but for saving rather than investing. And like Acorns, you aren’t going to get rich saving such small amounts of money. If you aren’t currently saving, any savings is better than none, especially if you don’t have any kind of emergency fund.

For those who are young and new to saving, the service is great. It’s easy to use and gets you in the habit of saving. For those who are older and still not saving, it may be too much of an easy out. It’s something you can do that will make you feel better. “See, I’m finally saving!”

But if you are already late to the game, you need to be more mindful of saving than this requires you to be. You should be aware of how much money you can save each month, not have it “tricked” out of you. You need to create a budget and include paying yourself as one of the non-negotiable categories.

You also need to save more than you are likely saving each month with Digit. Those little amounts are not going to do much to fund your retirement one day.

There is no charge for the service, but your money isn’t making you any money sitting in that account either. To be fair, it’s not making you money sitting in your bank’s savings account either, but that money could be invested making you an average of 7% a year.

Pros

For those new to saving, this is an easy way to get started.

There are no account minimums and no fees.

Every three months Digit will automatically give you a Savings Bonus of 0.20%.

You can earmark money for different goals.

Cons

You can’t make transactions via the website, only through the app.

Your money isn’t earning any interest apart from the small Savings Bonus.

Bottom Line

Digit is a useful service for young people who are new to personal finance and saving money. It can help teach good habits like saving an emergency fund (rainy day fund) and for specific goals. If you are older and just like the idea of saving a little extra money apart from your regular investment and retirement accounts, Digit certainly does that for you.

Show Notes

Digit:  Automate saving using Digit

Keegan Ales Hurricane Kitty:  A heavily hopped India pale ale.

Forbidden Traveler Apple Ale:  A crisp wheat beer brewed with real apple.

Digit LMM Offer:  Be among the first to sign up for Digit.

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  • bythedog

    I’m trying to figure out how one might use this. Since I wouldn’t be making any interest, it seems to me like it would be for super short term saving. The best I can come up with is that I might use something like this to find my “savings leaks” (I’m coining that). So, suppose I put x amount of dollars into Betterment each moth, and through using this I find out I can put x + 100 dollars into Betterment at the end of the month. Does anyone have any other ideas about how to take advantage of this?

    Oh, and you guys shouldn’t worry too much about not responding to e-mails right away. You’re giving FREE advice!

    • Andrew M

      +1 on the email comment!

      • You know I love you Andrew, right?

        • Andrew M

          Always, just don’t let your wife see our bro-mance on here, lol

    • This system is really for those who don’t save money at all. Those who think they can’t save because they have very little in their checking account. Putting money away into savings isn’t about making interest for most people. It’s about the protection it provides. Many, and I mean many, people don’t save anything at all. This can help them and show them they can truly save.

      For those of us who already save, this is probably not going to be the way to do it. I would rather put my money into my Betterment or Motif account and earn bigger returns.

      • I’m with Grayson here – it’s definitely focused on helping people save who don’t already. I will say that it’s a good intermediary between your Betterment or Motif account.

        That said, who can’t use a little help saving? I know as tight as I can be with things money still occasionally seems to fly out of my wallet.

        • I will actually probably use it to fund my investing accounts. It will show me the money I have just sitting around.

          • Same, plus it isn’t like a bank gives me any meaningful amount of interest on my savings account. Not sure I understand the difference between 0% and 1% ;)

          • Haha! What, you don’t like earning a penny for every $10 you have saved? Big money…

      • bythedog

        Great points, Grayson.

    • For the record, I wrote an article called “Plug Your Savings Leaks” in Feb 2013 (http://www.listenmoneymatters.com/plug-your-spending-leaks/) but who’s counting ;)

      My impression from Digit (been using it for a few weeks) is that it is a more intelligent version of Acorns. The difference is that it doesn’t immediately invest the money so you have the ability to send it to Betterment or Vanguard. I like this better than Acorns cause fee wise, Acorns is actually pretty damn expensive.

      Thanks for your support on the whole email thing. I love talking with fans and helping where I can but sometimes I get a bit carried away with other stuff like redesigning the whole site (coming Feb 1st).

  • Andrew M

    I tried it as soon as LMM mentioned it, figured to give it a try.
    Know what I found out? I’m OCD control freak with my money, and as soon as it took a little out, I just didn’t like it. Not because it’s a bad idea or a bad system, but I must know exactly what’s being taken out and roughly when it will be taken out.

    I use Acorn, which is also automated, but I can look and see “oh, I’m getting close to the $5 deposit, and this is why, sweet.”
    I think I need therapy. :-

    • Hah! I’m not too different although I’ve been trying to channel my money OCD towards research and finding ways to automate or amp what I’ve already got going. Gotta trust your past OCD moves were good and leave them be. For what it’s worth, Acorns isn’t all that different in its “taking action on its own approach”.

      • Andrew M

        I know, but I know how it comes to it’s conclusions and I can manually do it if I need to.
        I really should get into Betterment though, just need to convince the loving wife and use your link.

  • Evan Windsor

    I make almost all my transactions on credit cards, then pay the full balance of my credit cards from my checking account once a month. Will this work with Digit or would this arrangement confuse digit too much?

    • It wont confuse Digit and with one of my accounts where I do this Digit basically wound up giving up and didn’t try to save anything. It needs data to make educated decisions and from what I can see it sooner errs on the side of caution than “over saving” if there is even such a thing.

    • Hey Evan, I’m the same way and Digit works well for me. Albeit I’m one of the founders ;)

      As long as you have that credit card bill hitting your checking account and other bills and income Digit is still quire effective.

  • This was a lot of fun. Thanks again for having me on the show!

    • Andrew M

      Thank you for being on here and interviewed by the LMM guys.