A self-made millionaire says the single most effective way to get rich is a simple decision most people don't make
“If you want to be rich, all you have to do is make a decision to do something that most people don’t do,” writes David Bach, who became a millionaire by age 30, in his book “The Automatic Millionaire.”
That decision is to pay yourself first.
“What
most people do when they earn a dollar is pay everyone else first,”
Bach explains. “They pay the landlord, the credit card company, the
telephone company, the government, and on and on.
"The
reason they think they need a budget is to help them figure out how
much to pay everyone else so at the end of the month — or the year, or
their working life — they will have something ‘left over’ to pay
themselves.”
This
mindset plagues many of us, and is “absolutely, positively financially
backwards,” he emphasizes. “And because this system does not work,
Americans wind up trying some pretty strange ways to get rich.”
These
routes to wealth include: winning it, marrying it, inheriting it, or
suing for it. But there is only one proven way to get rich, Bach writes,
and it also happens to be the easiest way: “Nothing will help you
achieve wealth until you decide to pay yourself first … [It] means just
what it says. When you earn a dollar, the first person you pay is you.
Most people don’t do this.”
Bach
recommends starting simple, by putting at least 10% of your gross
income into a pretax retirement account, such as a 401(k), Roth IRA, or
traditional IRA.
If you’re not comfortable making a 10% contribution, it’s better to start small than not start at all. In fact, Bach started by setting aside a mere 1%. Over time, he gradually increased his percentage — from 3% to 10% to 15% — until he reached 20%.
Once you’ve decided on a percentage to contribute, make it automatic, Bach stresses. This way, you’ll never even see the money and you’ll learn to live without it.
“You’d
be amazed how effortlessly you can learn to live on a little less,” he
assures. “You can’t spend what you don’t have in your pocket.”
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