Section II - Lesson 1
Investing Basics - Paying Yourself First
The secret to wealth is to pay yourself first. This is so important that I want to say it again.
The secret to wealth is to pay yourself first.
If you take only one thing away with you as a result of visiting this website, let it be that revelation.
As your first step to becoming wealthy, you'll need to commit to saving 12% of everything you earn, and arranging to do so automatically, and right off the top.
Almost anyone you talk to who has actually made this kind of commitment will tell you that after the first or second paycheck they literally forgot the money was coming out. They never even missed it. We tend to match our spending with our income, and when we have less income we simply cut our spending.
Many of us have grown up believing that "savings" should be what's left over after paying all the bills and satisfying all our wants and needs. This, of course, is not the way to get the job done. There'll never be anything left over when we follow this approach.
Two classic books, The Richest Man in Babylon, by George S. Clason (Dutton, 1997) and The Wealthy Barber, by David Chilton (Prima, 1998) preach the gospel of paying yourself first. "A part of everything we earn is ours to keep", they say, and this part should be paid to ourselves first, before paying any bills or any other items.
The structure of 401k plans makes this advice very easy to follow. We tell our plan administrator to deduct 6%, or whatever, and we have truly paid ourselves first. Our money comes out before we even see our paycheck and our instructions remain in place until we change them, which we never intend to do.
With our regular money account we can make it equally easy to pay ourselves first. Whether you direct deposit your paycheck or simply make a manual deposit every payday, you can instruct your bank to automatically debit your checking account for a dollar amount equal to another 6% of salary once a month, on a particular day of your choosing, and use this money for investment.
Between the two accounts you'll take your 12% right off the top each month, and do it automatically, before anyone else can get their hands on it. This is truly taking pro-active control of your affairs and making your first major step towards financial independence.
A Publication of About Your 401k.com
The book that inspired the birth of this website. Now available in either PDF or hardcover. Check it out!
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