Last week, we discussed how you should figure out your personal “Latte Factor” and to “Pay Yourself First.” Once you have done so and you’re ready to make your savings a reality, how do you make sure that you are really putting money aside every month? The answer is in the next step of the plan outlined by David Bach in The Automatic Millionaire—make your finances automatic.

 

Even if you have made the decision to save for your future by “paying yourself first” and you desire to do so, will you have the time and discipline to sit down at least once every month to set that money aside? Maybe you do, but for many people, even if they want to save, they will just never get around to it. But making savings “automatic” solves that problem.

 

Do you have a 401(K) or 403(B) through your work? If so, is it difficult to remember to put money into that account? Likely not, since most accounts through employers are set up to be funded by being automatically deducted from your paycheck. So not only do you not have to think about it, you learn to live without that money since you’re paying yourself first.

 

What if you don’t have access to a retirement plan through your employer? Most investment/savings accounts have the option to set up automatic savings to be invested. While the initial set up may take some time (contact your bank or investment company to find out how), once you have done so, you will be putting your desired savings away into accounts for your future without even thinking about it.

 

Making your savings automatic will also help in another aspect. If you leave your savings sitting in a checking account for months with no interest, and then transfer it when you get around to it, you will miss out on the interest that would have compounded on that money. So, try to set up your automatic savings at least once a month, but preferably whenever you get a paycheck. According to Bach, “Over time, money compounds. Over a lot of time, money compounds dramatically!”

 

While making your savings automatic is not necessary to becoming a millionaire as long as you make the commitment to “Pay Yourself First,” it will save you a lot of time and make sure you aren’t missing out on interest.

 

In two weeks, we will have our last post of Bach’s plan, which will discuss how to deal with debt while becoming an “Automatic Millionaire.”

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.
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