Who wants to be a millionaire the answerto that question has always been obvious enough pretty much everyone thepressing question is how to earn that moneyif you don’t win the lottery or some popular game show then you’ll have toinvent some revolutionary product or start agroundbreaking business or will you well as it turns out thereis actually an easier way to become a millionaireand this method is outlined in the book the automatic millionaire written by david Bach and in this BOOK SUMMERY I will share with you the five best ideas from this book.
Tip for Becoming Rich: Pay Yourself First
One consistent saving can make you rich you may not think that earning under fortythousand dollars per year will lead you to becoming a millionairebut if you use this money wisely you’d be surprised how far it can gotake jim and sue mcintyre when they weregetting financial advice from the author he was astounded to noticethat jim had never earned more than forty thousand dollars a yearyet here they were in their early fifties with nearly two million dollarsin net worth the mcintyres are living proof that thekey to success isn’t earning a huge paycheck it’s being smart and creating yourself an easy to manage financial plan soon after their marriage the mcintyres were lucky enough to receive invaluable financial advice from their parents Jim and sue were told that they could either work for their money or make their money work for them obviously the McIntyre’s wanted to put their money to work so they came up with a simple to follow plan employing a portion of every dolla rthey earned it started with a mere four percent of their income and over the next few years they gradually increased that to 15percent to avoid the risk of frequent budget ingarguments they also set up a system that automatically distributed and budgeted their funds what the McIntyre’s also outgoing for them was that they established and started this plan early on this allowed the money they put aside to increase in value exponentially thanks to its accruing compound interest so with this in mind there’s a very good chance that you already earned enough to become a millionaire in the years ahead over the past five decades the average prices on the stock market have risen by around ten percent every year this means that if you set aside two thousand dollars every year during your twenties when your 65th birthday rolls around you’ll have over a million dollars to celebrate with this idea of getting rich over time by regularly putting away a small amount of money is called the latte factor your average coffee shop latte costs around three dollars and fifty cents which as anev eryday cost adds up to around 1250 dollars per yearif you’re a pack a day smoker spending seven dollars on cigarettes every day will add up to around twenty five hundred dollars per yearnow let’s say you put aside ten dollars every day if we add anannual return of ten percent that would leave you with almost seven hundredthousand dollars in thirty years time and nearly two million dollars and fortyso today is the day to start reconsideringthe money you spend on all the little thingssince there’s a good chance you already have what it takes to become anautomatic millionaire idea number two pay yourself before youpay anyone else we all have unavoidable expenses thingslike taxes rent and insurance it’s only after wetake care of these costs that we can finally set aside some money forourselves right not so fast you may think this is themandatory order of things but the truth is you can reverse.
It the first person you should really be giving money to is yourselfafter all you work to support the well-being of yourself and your familynot the other people and their businesses a quick first step that canimmediately correct the order of things and ensure that you get paid firstis to set up a pre-tax retirement account this not only allows for moneyto be automatically directed to a savings accountit also makes smart financial sense since the money in your retirementaccount will only be taxed when you withdraw it it’ll likely be taxed at arate lower than the one your current income issubjected to plus by diverting these funds you also havemore pocket money now say you have an annual income of fiftythousand dollars if the current tax rate is thirty percentthat leaves you with a net income of thirty five thousand dollarsand if after taxes you put aside five thousand dollars for retirementyou’ll end up with thirty thousand dollars now if you use a pre-taxretirement fund that five thousand dollars will be taken straight from yourinitial fifty thousand dollars giving you forty five thousand to betaxed at thirty percent which leaves you with thirty onethousand five hundred dollars that’s fifteen hundred dollars more to spendevery year so now’s the time to commit to puttingaway at least one hour’s pay every day for future prosperity theaverage american currently saves less than 5 percent of his gross incomewhich only adds up to 22 minutes worth of daily paybut the key to being an automatic millionaire is to save at least 10percent of your gross income the more the better and by putting awayan hour’s worth of wages every day you’ll be sure to hit thatmark but don’t wait until the end of the year to put aside your 10or else you’ll likely find that you didn’t budget properlyinstead automatically take the money out of every paycheckthis is what being an automatic millionaire is all aboutthink of it this way you can’t afford not to save at least 14a day for 35 years with a 10 interest ratethis will provide you with a small fortune of 1.6million dollars idea number three automate everything let’s take anotherlook at the mcintyres who despite their modest salaries became millionairesamong the secrets to their success was not only a commitment to payingthemselves first but having a way to avoid the stress andunrealistic amount of discipline it takes to budget their spendingafter the mcintyres had a few arguments about saving moneythey decided to do things differently and take themselves out of the equationinstead of trying to control their behavior they set up an automatic systemfor paying themselves first and the only decision they had to makewas the exact percentage of their paychecks that they were going to putaside once this was decided they put anautomatic payment system in place that deposited the money straight into asavings account it’s easy to see why this works if themoney doesn’t show up in your checking accountyou won’t be tempted to spend it here are a few more tips to help you set up agreat system for automatic saving first remember to make use of thepre-tax retirement account mentioned earlierthis really makes a difference second don’t assume that your currentretirement plan is the best one for you in fact don’t even assume that you haveone there may be a better interest rate availableeven if you’re self-employed you should check your retirement account optionsand make sure you have the best one available now you might be asking whatif i don’t have a retirement plan yet go to a bank brokerage firm or mutualfund company and set up an individual retirement plan as soon aspossible as you’re looking over your options pay close attention to the waysyour plan can protect you against market fluctuation thismeans making sure your money is going to an investment portfolio that isdiversified and includes a variety of instrumentslike bonds cash stocks and treasury billsidea number four rest easy with an established emergency fundunfortunately there are no guarantees in life when it comes to having a steadyprosperous income this basic uncertainty can lead to worrysleepless nights when you’re stuck contemplating all the dreadful what-ifsinvolving pay cuts or unexpected lay offs
So it’s only good sense for yourautomatic financial plan to include an emergency fund when you set up anemergency fund it not only acts as a financial safety net it can also helpyou live a more stress-free and unrestrained life this is the addedbenefit of being an automatic millionaireyou build wealth while also putting an end to all the time and energy spentworrying about your finances the average american has less than threemonths worth of expenses saved up in case of an emergencyunder these circumstances it’s no wonder that the threat of unemployment is anincredibly stressful and common feeling so why not reducethis fear and give yourself more freedom by saving up when you havebetween 6 and 18 months worth of wages saved up you’ll find it easier todecline overtime offers from your employeror to change your career path altogether
if you’re feeling uninspired by yourwork you can start building up an emergency fund by automatically putting aside five percent from every paycheck but remember this is a real emergency fund so you have to treat it as such and only dip into it when there’s something like a natural disaster or a medical emergency to cover now just like your retirement account you should make sure your emergency fund is in good hands with a trusted financial institution that will earn you proper interest for example putting your regular five percent payments into a money market account is usually a reliable way to ensure you’ll earn more interest than your standard savings account government bonds are also a safe bet for earning reliable interest but just be aware that they can often take more time to cash out still both of these methods will leave you better off than keeping your emergency savings buried in a jar in your backyardidea number five owning a home beats renting in the long run Jim and sue McIntyre were not only clever about their automatic savingsplan they made another smart decision when it came to housing by the time they reached their early 50s the couple owned twohouses they lived in one and rented the other route which gave them an additional source of incomes here again we can follow in the footsteps of the mcintyres by ceasing to Pay rent and becoming homeowners as soon as possible ultimately renters end up giving their landlords around the same amount ofmoney as someone if they were to pay monthly installments on a home ownership mortgage but despite paying the same amountrenters have nothing to show for it at the end of the day what’s worseall this money going to the landlord’s pocket can keep them strapped for cashand unable to make the leap to home ownershipif you’re worried that you’d never be able to pay off a mortgage
here’s areassuring fact the rate of foreclosures when ahomeowner is evicted for failing to pay off their mortgageis currently less than two percent however when you finally make the movefrom renting to buying you have to make some importantdecisions such as choosing the right kind ofmortgage and coming up with a way to pay it off quicklythere are a variety of mortgages out there so choose wiselywhen low interest rates are common it makes sense to use a fixed rate mortgageit’s even better to set up a bi-weekly payment plan with your bankrather than a monthly plan as this will allow you to pay off your mortgagefaster instead of making 12 payments of the monthly fee you’ll make 26 payments of half the monthly amount which adds upto making 13 full payments within the yearand paying off your mortgage as quickly as possible isn’t just a matter of timedoing so will also mean you’ll pay less interest for exampleif you have a 30-year 250 000 mortgage using the bi-weekly payment plan willsave you more than 44 000 and there you have it the five best ideas from the book the automatic millionaire by David Bach thanks.