Believe it or not, getting rich takes more patience than effort.
According to bestselling author David Bach, who is releasing an updated version of his hit book “The Automatic Millionaire” this December, the “most important” first step to take in building wealth is also the easiest: Automate your finances.
The “pay-yourself-first plan,” Bach told Business Insider in a recent Facebook Live interview, is automating your accounts so that a portion of your paycheck moves into your superannuation plan or savings account before you even see it.
“What most people do when they earn a dollar is pay everyone else first,” Bach, who has spent 25 years in the wealth management industry, explains in his book. “They pay the landlord, the credit card company, the telephone company, the government, and on and on,” and think they will have enough money left over to pay themselves after, he writes.
The best strategy for ditching this habit is to automatically pay yourself, in the form of saving for retirement or other important financial goals. “When that money is moved before you can touch it, that’s how real wealth is built,” Bach, who became a millionaire by age 30 by increasing his automated savings over several years, told Business Insider.
And setting up automation takes just a few minutes.
If you set up a super through your employer, your contribution will typically be automatic, so that’s a great place to start. If you want to save a portion of your after-tax income, you can connect multiple accounts to your direct deposit and designate how much money from every paycheck will move into each account.
After you’ve built up an emergency fund with six months’ worth of expenses, try automating into a high-yield savings account, where you could be earning 1% interest on your money, rather than the 0.01% earned in a traditional savings account. Another great option is to put your savings in a low-cost target date fund, a diversified retirement account that invests your money into a combination of stocks, bonds, and alternative assets.
Bach suggests saving from each paycheck whatever you’re earning in one hour of your work day. If you’re a salaried or non-hourly employee, all it takes is a simple calculation.
“You’d be amazed how effortlessly you can learn to live on a little less,” Bach writes in his book. “You can’t spend what you don’t have in your pocket.”
Additional reporting by Kathleen Elkins.
Watch more from Business Insider’s FB Live interview with David Bach:
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