If you’re hoping to reach millionaire status some day, there’s one small move you can make now that will virtually guarantee it: Automatically save an hour a day of your income.
“That is such timeless advice that what happens, sometimes, is it sounds boring,” said bestselling author David Bach, who is releasing an updated version of his hit book “The Automatic Millionaire” this December. “And it shouldn’t sound [boring], because it’s what works,” he told Business Insider in a recent Facebook Live interview.
“If you’re watching me and you’re in your 20s, literally all you have to do to change your whole financial life and never worry about money — if you see your parents struggling and never want to worry about it like your parents — all you have to do is keep one hour of your income a day, automatically,” said Bach, who has spent 25 years in the wealth management industry.
It’s all part of the “pay-yourself-first plan,” as Bach calls it, which is the practice of automating your accounts so that a portion of your paycheck moves into your 401(k) plan or savings account before you even see it. This takes the effort out of manually saving and ensures that your money will grow exponentially over time thanks to compound interest.
“Why are you going to go to work this year and work 2,000 hours this year, at least, and not keep one hour a day of your income? You’re going to work 90,000 hours on average over your lifetime,” he said. If you’re a salaried or non-hourly employee, all it takes is a simple calculation to find out your income for one hour.
Suppose you make $50,000 annually and you work a full-time job, 40 hours a week. You’ll be paid for about 2,080 hours of work in a year, equaling roughly $25 per hour. Bank that much each day, and you’ll be golden, according to Bach.
Bach, who became a millionaire by age 30 by increasing his automated savings over several years, said he teaches a concept in his book called ‘The Latte Factor’ which encourages people to start by saving just $5 a day — the amount you’d likely spend on your morning latte. “[It] can change your whole life,” he said, explaining that at a 10% return over 40 years, you’ll have $948,000 saved.
Bach noted troubling research from the Federal Reserve that revealed nearly half of Americans wouldn’t have enough money on hand to cover a $400 emergency. Yet, he continued, millions of those people will buy a coffee at Starbucks today and expect to buy the new $800 iPhone next year.
“So we have money in America, the problem is we’re not keeping any of it,” Bach said. “‘The Automatic Millionaire’ mantra is: Pay yourself first and let’s put ourselves first.”
Watch more from Business Insider’s FB Live interview with David Bach: