As we rapidly approach the last few months of 2023, can you say you were able to pay yourself first this year?
You still have time to make this good money habit one of your best financial practices. In a blog post from December 2022, “Automatic Millionaire” author David Bach shared why paying yourself first was his one piece of advice going into 2023.
Here’s why it matters to pay yourself first and how to get started right away.
Why Pay Yourself First?
Paying yourself first is a common money habit of good spenders. Instead of waiting until the end of the month to contribute to savings or investments, paying yourself first means you transfer money, or a percentage of funds, into a savings or investment account each time you get paid.
Bach’s blog post emphasizes not just paying yourself first but paying yourself first using one hour a day of your income and doing it automatically for life. In the span of one year, Bach wrote that most Americans will work 2,000 hours in 2023 and up to 90,000 hours over the course of their lifetime. When you pay yourself first, you keep the first hour of your earnings daily.
How Do I Automate Paying Myself First?
Those who are worried they will forget to save this money on their own can set up an automatic transfer to their savings account(s). Doing so funnels money to these accounts and helps avoid any barriers.
How can you automate this process? Bach shared a few tips in his blog post. Start by moving the money into a 401(k), 403(b) or IRA. Those who don’t have one of these retirement accounts are recommended by Bach to open an IRA and set it up automatically.
From here, you can ask your employer to begin automating money from your paycheck into one of these accounts. If your employer doesn’t do it, Bach recommends automatically depositing your paycheck into your bank account and then setting up this account to move the money automatically into your IRA for you.
One final recommendation from Bach is to pay yourself first in a retirement account that grows. Instead of trying to grow this money yourself, Bach said you can review the target date mutual fund options on your 401(k). These should be inexpensive, automatically diversified for you based on age and automatically rebalanced.
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