Tips & advice on getting your finances back on track.
What lessons can a twenty-something college grad take away from David Bach’s bestselling book, “The Automatic Millionaire”? How well can the book’s principles be applied to someone, just starting out in the working world, with a backdrop of student loans and an active (and potentially costly) social life.
I recently read David Bach’s book to see what small changes I could apply to my financial life and start on a path to becoming my own automatic millionaire.
1. The Latte Factor
How much do you spend a day on those little daily purchases? Purchasing one cup of coffee every day for $3.50 adds up to $1,260 a year on coffee alone! What would happen if you invested that money over several years instead of buying a daily coffee? My latte factor isn’t coffee, but making impulse purchases on Amazon. I started cutting out my weekly splurges on Amazon and started saving that money instead. Take a look at your own spending behavior and identify repeating purchases that could easily be eliminated. No matter how much you income increases, controlling your latte factor can have an effect on your financial future. Being mindful of the little every day purchases can make a huge difference in your long-term financial success.
2. Pay for Yourself First
As soon as you get your first part time job as a teenager, you’re told to save and budget! Instead, think: “Pay Yourself First”. This is one of the best ways to become financially independent. Most people aren’t even saving one hour’s worth of work a day for themselves, meaning their future self is missing out.
David Bach suggests aiming for saving 15% of your income every year. Set a goal to save a certain percentage every pay day and gradually increase it until you’re saving 15%. Slow and consistent saving is a sure way to becoming an automatic millionaire. I have slowly started to pay myself first. Although I have had to cut out some spending in my personal life, I feel good about my future financial success.
Read More: Becoming Financially Independent- The Basics
3. Now Make it Automatic
If you are in your mid 20’s, you might think you are way too young to be thinking about putting money away for retirement. In reality, the earlier you start saving, the better off you will be long term. The key to this is to make it automatic. Most of us cringe at the thought of looking at their bank statement to see your spending money dwindling, let alone transferring your hard earned cash into a retirement fund for decades in the future. The least painful way to do this is to make it automatic. Have a small portion of each pay check deposited directly into your retirement account. Now you’re paying yourself first automatically! In all honestly, how many times do we say we are going to save money but don’t actually put our savings anywhere? I am guilty of this, but have now set up a separate account for my automatic savings. Making payments automatic is a money-saving lifesaver for us Millennials.
4. Automate For a Rainy Day
Having an emergency fund is crucial; you never know what is coming around the corner. Don’t be the person with a stash of cash between their mattresses or non-interest bearing savings account. Open a money market account for your emergency fund, so it can earn a little interest while it waits for that rainy day. Strive to have 3 months’ worth of expenses squirrelled away in this emergency account. When I first opened my checking account, I also opened a savings account right away and immediately started collecting interest. Opening a money market account helps you maximize your interest earned while maintaining an emergency fund.
5. Automatic Debt-Free Home Ownership
Purchasing a home may seem like one of those commitments that established adults make, and for us millennials that seems like an impossible concept. Buying a house is actually the easy part. The real hard part is thinking: How am I going to pay for this house? This is where making it automatic comes back into play.
Bach suggests people take out that thirty year mortgage, but pay it bi-weekly instead of monthly. Don’t forget to make these payments automatic so you won’t even have to think about making the payments. Paying every 2 weeks instead of monthly means you pay an extra monthly mortgage payment each year. It helps you pay off your home in less than thirty years. Think about all the money you are paying towards your rent every month when you could be using that money toward a mortgage. Another solution to avoid wasting money on rent: live with your parents after you graduate instead of moving out on your own and paying rent. After I graduated college two years ago, I moved back in with my parents so I can avoid paying rent or a mortgage and save that money for my future home. Living with your parents maybe isn’t what you planned, but it sure can save you some money.
Read More: Are You Ready To Purchase A Home?
6. The Automatic Debt-Free Lifestyle
Credit Cards are not free money. While credit cards have great perks, don’t forget that money has to be paid back. In order to become an automatic millionaire, you can’t rely on your credit cards and be only paying the interest on the card payments. If you can’t afford to pay cash, then you can’t afford to pay for it with credit. If you feel too tempted, don’t put your credit card in your wallet. Did you know, using cash money has actually proven to reduce impulse spending?
If you are already in credit card debt, make your payment automatic, paying off as much as you can afford. Don’t just pay the minimum balance due. Once the debt is gone, pay your credit card off in full every month. I learned this the hard way and now only use my credit card for emergencies. You might think you really need that expensive designer handbag and you can just charge it on your credit card, but trust me it is not worth the debt. If you think you need help with your debts, consider a credit counseling session with one of our certified credit counselors
Read More: A Debt Free Future Is Possible
Becoming an automatic millionaire is not something that happens overnight. This takes YEARS and requires patience. If you are in your mid 20’s, starting this process now will really help you long term. My mind was blown after reading this book and I immediately started taking steps toward becoming an automatic millionaire, will you?
Katherine Fatta is the Social Media Coordinator at Navicore Solutions. She creates fun and informative social media posts that engage the public.