What if I told you there was a simple way to become rich? Would you be interested? What if I told you that it would only take you 10 minutes max to do and you would only have to do it one time? (Hint: it does not involve robbing a bank.) Some of you might be getting excited while others now think I am full of it. But what if I told you that the government, mutual fund companies, the rich and many of the companies you deal with are already using this strategy? Would this make it more believable?
So what is this revolutionary way to become rich? Simply put, it is called paying yourself first. I know, it turns out it isn’t revolutionary after all. But many people and businesses do it already which proves it works.
Think about it: when we first started paying taxes to the government, we had to mail in huge checks come April 15th. The government never withheld taxes from our paychecks at first. But it found out quickly that most people spend first, save later (or save never) and as a result, could never pay their taxes. The solution: the government takes its money from you first. They pay themselves first. This guarantees they always get paid.
Mutual fund companies do the exact same thing. If you invest in a mutual fund, you pay an annual expense to keep the fund running. What, you never get a bill for it? That’s because the mutual fund takes the money out of the fund first. If a mutual fund is charging a 1% annual fee and it returned 5% for the year, it really returned closer to 6% for the year. The fund took the fee off the top (paid itself first) and the return that was left is what you earned. (You can learn more about mutual funds in this post.)
So how can you take advantage of this yourself? Simple really. Whenever you get paid, just set up a transfer from your checking account (like this one from BB&T) to your savings account for a certain dollar amount. Presto, you are done!
Most banks offer this type of service, though I will admit, some are better than others. I use Capital One 360 and I can choose the start date, the frequency and the amount all online. Changing it is a breeze too.
If your bank doesn’t offer this, you have two options:
- See if your work will split your paycheck for you. Many do this, you just have to fill out a form.
- Switch banks! If you read my review of Capital One 360 above and like it, here is link to sign up and earn a free $25!
Now, let’s say you are super lazy (nothing wrong with this) and you don’t want to set up an automatic transfer. Well, you are in luck my friend. Say hello to Digit. This is a free service that will analyze your income and expenses and make transfers to a savings account for you. All you have to do is sign up!
I’ve been with them for over 2 months now and have saved over $200! To do anything all you do is send them a text message. How freaking cool is that? The link above will take you to my detailed review.
Supercharging Your Path To Wealth
I’ll admit, that with low interest rates now, it is going to take you a while to become rich on a savings account alone. But here is some good news…you can also pay yourself first when investing too! By setting up an automatic investing plan, you are basically doing the same thing, the only difference is that you are earning more than with a savings account.
There are a ton of automatic investing options for you to choose from. You can pick Betterment if you want the simplest way to invest. Or, you could choose just about any mutual fund provider out there as most offer automatic investing plans. There are a bunch of brokers that offer automatic investing too. Check out my online broker comparison chart to find one the fits your needs best.
I have had an automatic investing plan set up since I got a job back in the early 2000’s. Every month, I have a small amount of money (around $100 or so) transferred into my investment accounts. Over this time, I have a return of over 16%.
Why Automating Works
It’s no surprise that we are all busy creatures. We forget to do things all of the time. We intend to invest some money this month but then a text comes in or it’s our turn to play Words With Friends and we forget to make the investment. By automating, you never have to remember. It is already taken care of for you. You are guaranteed to save or invest.
Better yet, it works because we never think to cancel or stop the transfer. Think about your expenses. I bet you have a handful where you are automatically charged for a service every month.
Companies are basically using automatic investing in reverse to get you to pay for their service. They know that if they can sign you up for automatic payments, odds are you will always pay. The only way you wouldn’t pay is if you cancelled the auto pay feature or you didn’t have enough money in your checking account. And if you don’t have enough money, chances are they will just charge you with an additional fee so that they make even more money off of you.
In fact, I am guilty of this! I bought a couple magazine subscriptions from a company online to save money. They told me that my subscriptions will automatically renew. I made a note to cancel the auto-renewal feature about a year ago. Have I cancelled? Nope – I just got an email letting me know my subscription just renewed!
If companies, the government, mutual funds, and the rich are all using this strategy, there has to be a good reason behind it. That reason is because it works. I’ve had it work for me. I’ve had it work for friends of mine who I have helped with their finances. I am sure it will work for you.
All you have to do is take 10 minutes right now and set up the transfer and never do anything again. (OK, you might want to go in there every so often and increase the amount you are saving, but you don’t have to.) How easy is that? The key though is to do it before your friend plays their turn in Words With Friends!
Here is a link to Betterment so you can take action now. Ten minutes is all you need and you will be so glad you started saving for your future.
[Photo Credit: Toronto History]