How To Set A Savings Budget & Pay Yourself First
Section 15 Module 5
According to self-made millionaire and bestselling author David Bach, there’s “one, proven, easy way to get rich” - Pay yourself first.
What that means is simple, Bach writes in "The Automatic Millionaire":
"When you earn a dollar, the first person you pay is you."
While not a revolutionary or particularly exciting concept, it works — yet most people don't do it.
"What most people do when they earn a dollar is pay everyone else first. They pay the landlord, the credit card company, the telephone company, the government …", Bach writes, and at the end of the day, they pay themselves whatever is left over. He calls this strategy "positively financially backwards.
According to David Bach, you should save at least the amount of money equal to one hour of your monthly income.
If you'd rather think about savings as a percentage, one hour's worth of income comes out to roughly 10% of your gross income, Bach says.
"Unfortunately, most people don't even come close to saving that much," he writes. In other words, most of us work barely 22 minutes a day for ourselves."
The key to upping your savings is to make it automatic — have your contributions automatically taken out of your paycheck and sent straight to your regular savings plan.
After all, "you can't spend what you don't have in your pocket," Bach says.