What was the first personal finance book you read?
The first personal finance book I read was “The Automatic Millionaire*” by David Bach. While some of his findings have been undermined recently (see articles regarding the “Latte Factor” here, here and here), the idea of “automating my savings” stuck with me because it was simple and actionable.
Automating ones savings, Bach explains, requires structuring accounts so that a set percentage of your income is automatically transferred into a 401(k), taxable investment account and/or savings account before you can ever seen those funds in your account. Set my savings goals and then forget them day to day? Sold.
If it’s so simple, why didn’t you implement it sooner?
Prior to reading Bach’s book, I had the best of intentions when it came to saving. I really did! Every now and then, I would stress in the presence of spreadsheets and notepads and commit to pulling $1,000 a month into a savings account and mayyyyybe setting aside some money in an IRA. Perhaps I would even get around to figuring out my other tax-advantaged account.
My intentions never progressed to action and, unfortunately, I would (i) run out of money before I could ever get around to transferring it to any of my savings goals or (ii) move the money into my savings account only to “revisit” the decision later in the month and guiltily transfer the cash back into my checking account.
A year and a half after finishing Bach’s book, I acknowledged reality. In order to be financially secure, I needed to take flexibility out of the equation. In addition to knowing what hadn’t worked in the past, I knew that, at that time in my life, I was paralyzed by decision-making and would likely hem and haw myself out of ever committing to a financial decision.
After re-reading the book and consulting with friends who were a bit wiser with their money, I built a schedule – based on pay frequency and:
- Set my 401(k) contribution to 10%. This seems high I know; but I also knew I needed to feel a little pinch and told myself I would adjust to the reduced paycheck. I did.
- Set up recurring contributions to “Emergency Fund”. I also set up a recurring “bill pay” transaction from my checking to a high-yield savings account at Ally to fully fund my emergency fund. The extra step of having to wait several days to get the money back to my checking account deterred me from “stealing” from my savings.
- Automate Investments. I also set up an automatic transfer into a taxable brokerage account at Vanguard, which I invested in low cost index funds.
It’s been a few years since I set up that initial “system” and I have seen my net worth triple thanks to consistent and systemic debt repayment and savings. During that time, I was able to successfully manage my money without guilt, distraction or anxiety.
What about now? Over the past two years, having adequately stretched my “savings” and “disciplined decision making” muscles, I took off the training wheels and take a more active role in managing my savings goals. It’s still not a “manual” process (because I simply do better with automation) but I goal set quarterly and annually and then set up recurring transactions (e.g. contributions to 529, 401(k), IRA and brokerage account) to match those goals.
How about you? What did you learn from your first personal finance book? What do you carry with you today? Have you automated your savings? If so, have you run into any issues?
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