Sunday, February 08, 2009

TASK #52: Finished book four of my book-a-week challenge

Wanna know how to become an "Automatic Millionaire"?
Yeah, me too - which is why I chose this as my fourth book in my reading challenge.

After seeing my retirement investments lose thousands over the last quarter I had to read something to get myself in a money mindset and figure out what to do. I'd read a little of this David Bach book before but never really read through it thoroughly.
It was an easy read and well worth the couple of days it took. So what did I learn?

Here are the highlights:
- Pay yourself first - okay, this doesn't sound like much but think about it for a minute. We pay our taxes, credit card debts, the schools, the gas station, the car companies, etc...We pay everyone first until our checks are gone and then we still have bills after that. We're not gonna be here forever and do we really wanna look back at 30, 40, 50 years of work and have nothing to show for it? So the book recommends to take one hour of pay per day and put into a retirement fund, either through your work to get any matching they offer, or directly into an IRA or Roth investment account.

- Find your latte factor - I know what you're saying, "I don't have anything left to pay myself first!" hm...really. Bach argues we have it, but we spend it on Lattes, cigarettes, mcdonalds, tabloid magazines, and dozens of other nice-to-haves but not necessary items - many of which cause other problems, addictions, obesity, etc. So if you think you can't put one-hours pay a day away, be real with yourself. Find your latte factor, cut the fat, and make it happen.

- Learn how to invest just enough to get 7-10% interest - ok, I see people running for the hills but seriously, his or 100 other books are out there to help you figure out how to invest your 401K, so pick one up, get educated, and make it happen.

- Establish an emergency fund - an emergency fund is about 3 months of expenses put aside for real emergencies, like the car or the furnace going out on you - or losing a job or your apt. The point is, it's not for non-essentials; for example buying a flat screen because it's on sale and "oh my god, this is a once in a lifetime deal!" no. With this, I actually followed the DaveRamsey baby steps, which were, 1. get current on bills 2. save a mini-emergency fund of 1000 2. sort and pay debts smallest to largest 3. save a full 3-6 months emergency fund 4. pay off the house/invest

- MAKE IT ALL AUTOMATIC - this is really the bottom line of the book. All the above recommendations have been made by many, but we just don't do it! Why? laziness, excuses, procrastination, lack of self control; so how do we fix this?
Lets consider how the govt does it - Years ago the govt got taxes paid at the end of the year, but guess what - people didn't pay! Even after threatening people prison time, people still didn't have the self-control and discipline to not spend it and put the money aside for taxes. So what did they do? They started taking the money out before it got to us; out of our checks! They made it automatic.
So Bach says - do the same thing they did, don't trust yourself to save at the end of the month, make it automatic in the beginning. Set up direct deposits at your work, right from your check to your bills, emergency fund, retirement account, and even to pay off your home 7-10 years early! it's actually very easy to do and it does work.

Other recommendations from Bach:
- Cut up your credit cards and get out of debt using the debt snowball method - see my other post on this.
- Auto-tithe to your charity of choice. The rich do it and it really does pay back dividends. Givers get more than you know.
- Apply what you've learned and Take Action! You know 95% of the people that read this won't do it! I mean any of it...they'll make excuses or stop because they don't know what to do next, or a hundred other reasons. It's pretty sad but true. How can you not be one of those sad many that will look back in regret when it's too late? Just try it...go to your HR dept, ask them how to change your direct deposits, and try it. At the least take advantage of whatever matching or free money your company pays in for you. if you're self employed use the self-employment roth through your local bank.

What did I do? I'm doing it!
I payed off my credit card debt with the extra cash I had in savings.
I made all my billpays automatic through my banks online payment program.
I changed my house payments to add additional cash toward the principal.
I adjusted my retirement account to stave off any more losses while still taking advantage of the upcoming upswing....oh, it's coming.
I cut up my extra credit cards so I don't use them. I kept one for emergencies, that's it.
I pay cash for everything and if I don't have the cash, too bad, I don't get it.
And I'm looking for a second investment property to balance my portfolio.

It was actually all pretty easy to do. I'm reading more on the Portfolio Management topic because this wasn't very helpful with that but it didn't provide some good websites to look into.

Ok, if you have any questions about this, shoot them over in the comments or via email. I'd be happy to help.

As for my next book, it is "How to Think Like Leonardo Da Vinci." So far, fascinating stuff though a little self-helpy. Did you know he was an artist, scientist, musician, chef, linguist, war-strategist, architect....and the list goes on! Also, he invented tons of things like the helicopter and parachute, and was the forethinker for many disciplines like....ok, wait, giving too much away too soon. Catch my next post to learn more. :)

I have about 100 pages to go but I'm gonna try to get em done by tomorrow. Then what? Not sure yet, but my stack of potentials is growing weekly!


Anonymous said...

I've finally paid off all of my credit card debt. HOWEVER, a lot of things I have read that talks about how to get and keep good credit is based on how many lines of credit are open to you and whether you are using them. It's not good to have credit cards that are sitting dormant and not being used but its also not great to close them. So, what I've been doing is charging maybe a lunch or groceries-something I need and would pay for anyway-once a month, just to keep them active, and then pay it all off when the bill comes.

The idea of paying yourself first is something to really take to heart. I really don't do that one.

Pablo Baez said...

Wow, good job on paying off your debts Jessica - that's huge!

Now get that 3-6 month emergency fund put aside and then pay off your cars and then your house early. :)

Yes, I agree about the Credit Cards. It's unfortunate but we do need a little revolving credit to keep our Credit Score up - so you're idea is what I do too. I keep one credit card and once in a while I use it just to keep the credit line. Another way is to call your company and ask to boost your limit - but don't use it! just make small purchases and pay them off immediately, every few months or so.

As for paying yourself first - seriously, do it and make it automatic. Have it come right out of your check.
Also, I put my emergency fund in an online bank account, HSBC. They have a high-interest savings account where I get 3-5% interest, and that way I can't touch the money without some effort and waiting a few days for the transfer. You don't want your emergency fund too accessible or it'll be too easy to use it for non-emergencies.

Good job Jessica and keep it up! :)