The Automatic Millionaire: Pay Yourself First

This week, The Simple Dollar takes a look at David Bach’s The Automatic Millionaire. I enjoyed Bach’s earlier book, Smart Couples Finish Rich, but will I like this one, too? Let’s find out.

The first portion of the book focuses on the “pay yourself first” concept, which basically boils down to putting away investments for the future right off the top, before you even look at living expenses. It’s a simple concept, but one that most people either (a) don’t believe in, or (b) believe is far too difficult to try (usually because they’re “just getting by” as it is).

The truth is that the “pay yourself first” concept, even if you pay yourself only a small amount each day, simply works. Let’s say you are able to put aside ten dollars a day; that gives you $300 a month to invest. Start doing this when you’re 25 and put it in investments that earn an average of 10% a year, do you know what you’ll have on your 65th birthday? $1.66 million.

Many people think about a ten dollar bill and can’t possibly connect it to being a millionaire, but the power of compound interest makes it so, and people who can harness the power of compounding are the ones that become rich; people who don’t spend their lives scraping together two dimes to get by. Bach spends several pages focused on this concept alone.

Bach also spends time explaining how it’s not difficult, either: just make the whole thing automatic. Withdraw it automatically from your paycheck each pay period and you’ll soon find your savings building up … and up … and up. Automation is the key, though, because without automation it becomes very easy to simply not save the money and instead use it for an unnecessary living expense.

With regards of coming up with money out of your monthly income and expenditures to actually start doing this… we’ll discuss that tomorrow.

The Automatic Millionaire is the thirteenth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

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