How would you like the peace of mind knowing every time a direct deposit is made into your account, you have a portion automatically being invested into a savings or retirement account without having to do anything? This is the beauty of automation.
By setting up a stream of your income to be automatically allocated for savings and retirement, you are well on your way to a new level of financial power.
As outlined in The Automatic Millionaire by David Bach, simply setting your finances on automatic will greatly improve and simplify your financial life. David encourages you to adopt a mindset of ‘pay yourself first’.
What does he mean by this? It means that the first dollar you earn each day should be going to you in the form of a savings or investment account. Think of your working day as a pie chart, or better yet a clock on the wall. Each quadrant of time represents something you are paying for. So, perhaps 9 – 11 is your rent or mortgage, 11 – 12:30 is your car payment, 12:30 – 1:30 is your gym membership, 1:30 – 3:30 is groceries, then 3:30 – 5 is your portion allocated towards savings.
The second person who will always get paid is Uncle Sam. There is no way around taxes but there are ways to reduce your tax burden by allocating money towards an employer sponsored 401K and other tax-deferred savings accounts.
The point is you need to create a mindset to ‘pay yourself first’. Everyone has associated costs with their choice of lifestyle. Based on your lifestyle and income, you can determine what and how much is allocated where. The whole point of paying yourself first is to take advantage of the power of compound interest. Regarded as “the eight wonder of the world” by Albert Einstein, compound interest is what allows your money to make money over time.
How will you allocate your finances for a stronger financial life? You should start with The Automatic Millionaire to get off to a great start.