As a self-made millionaire, David Bach knows a thing or two about building wealth.
Bach even lays out how others can duplicate his success in his bestselling book, “The Automatic Millionaire,” which was updated and re-released this month.
But as he teaches others to follow his lead, Bach notices two crucial mistakes 30-somethings make when it comes to money: Not contributing enough to their superannuation plans and renting instead of buying a home.
Let’s break those down:
“You’re not saving enough in your retirement account at work, your superannuation plan,” Bach told Business Insider during a Facebook LIVE interview. “You’re saving 5% now on average or less. You need to click over to your superannuation plan and you need to sign up for it at a higher level — at least 10%, ideally 15%.”
Contributing to a superannuation plan is advantageous for a number of reasons. For one, many employers will offer a superannuation match up to a certain amount of your contribution, where the employer “matches” a percentage of your own contributions in your account. That’s about as close as anyone can get to free money.
Superannuation plans also accumulate compound interest, which is when the interest earned on an investment earns interest on itself. Because of it, a little money contributed today will ultimately earn more than a lot of money contributed tomorrow — so don’t wait.
Seriously, don’t wait. Contributing less per year starting when you’re 25 will earn you more in the long run than making larger contributions starting at 35. Retirement savings are an area in which it’s extremely difficult to make up time.
Buying a house
Despite numerous detractors, Bach is outspoken about the financial benefits of purchasing a house.
“Even though home prices just hit an all-time high, you need to get in the game of home ownership,” he told Business Insider. “It is absolutely critical and imperative to your long-term financial security that you own a home and that you pay your mortgage off. Because when you own your home and it is paid down and you get to the point where it is basically free and clear, you have the ultimate financial security.”
As Bach puts it, you have to live somewhere for the rest of your life. You’re either paying a landlord or you’re investing in a permanent place of your own, one you could potentially own forever. Instead of throwing away money to help someone else get rich by renting, owning a home is an investment in your own future.
By waiting until they’re older and seemingly more stable, 30-somethings are missing out on the “escalator of wealth that is built simply by buying a home and living in it,” Bach says.