A very good book for beginners where everyone can understand without any difficulties. Most importantly, it keeps stressing the reader to take action! Providing you numbers to call, what to look out for, questions to ask and step-by-step instructions to set things into motion. As the title suggests, it really makes it automatic requiring only a one time setup. You only need to take that action!
“Discipline cannot be trusted, make it automatic!” ~ bigfatpurse.
“If only I could make more money, I’d be rich.” “The more we make, the more we spend.” “How much you earn has almost no bearing on whether you can and will build wealth.” Get rid of unescessary spending. It is how much you save that matters, not how much you earn. The Latte Factor – small things matter. With compond interest, savings from small things can accrue to millions in the future. Track your daily expenses on all things big and small and analyse what can be cut down or at least reduce the expenditure.
“Put yourself on a budget and everything will be fine.” The truth is no one is good at budgeting and no one wants to be controlled. The key is “pay yourself first.” It is not new, you have heard of it repeatedly. But, are you doing it? you need to set up a system in which you pay yourself first automatically. “A system that is based on the way people really are, rather than the way they think they should be.” Uncle Sam collects taxes first before the paycheck goes to you. “The foundation of wealth building is pay yourself first.”
Make it tax-deferred and automatic
Set up a retirement account. 401 (k) plan and IRA in US or CPF and SRS in Singapore. You do not get taxed for the amount you put in such account until you take the money out (also known as tax-deferred retirement plans). Make automatic deductions once you get your paycheck. “You need to have a system that doesn’t depend on your following a budget or being disciplined.” It will land you in a situation where “you cannot spend what you do not have”. Maximise the amount that you can put into this account.
Invest it properly
Asset allocation based on your age (also known as life cycle investing) – allocating in a combination of cash, bond and stocks. Cash and bond give lower risk while stocks possess higher risk. At younger age, allocate more to stocks and gradually shift to cash and bonds at older or retirement age. Look for an asset allocation or a balanced fund as they both offer a right mix of cash, bond and stocks in a single fund.
You need emergency funds
For emergency funds, one must set aside at least 3 months’ worth of expenses. The guideline is such that the amount will let one sleep well at night. Hence, it differs from people to people. Make sure you must not use it as it is solely for emergency purpose. Instead of putting it in the bank, put them in a money market fund – high liquidity and pays higher interest than banking accounts. Alternatively, you can purchase government saving bonds. Likewise, make it automatic!
On home ownership
Next, you need to buy a house and pay it off early. Some of the reasons why you must own a house:
- Forced savings – to keep your house, you have to pay mortgage
- OPM – using other people’s money to help you buy the house
- Good investment returns
- Renting gets you nowhere, use the budget to pay mortgage
Save hundreds of thousands in interest and own your house earlier!
Look for a 30 year loan but with a bi-weekly payment plan. It will possibly save you hundreds of thousands dollars as compared to a monthly payment plan without paying more each month. E.g., pay $1000 every 2 weeks rather than pay $2000 every month. This is because there are 52 weeks per year and divided by 4 (4 weeks per month), you get 13 months. Hence, you make an additional mortgage payment for each year. In this way, you can pay off the loan much faster and incur a lower interest.
Alternatively, you can either make 110% mortgage payment every month or 2 x mortgage payments in a particular month (bonus month) of the year. Both will cut a 30 year mortgage to 22 years. One important thing to ensure that extra payment is used to payoff the mortgage and not held for future payments.
Eliminate credit debt!
Stop using credit cards! You still need to save for the future in addition to paying off your debts. This will serve as a motivation as you can see yourself progressing. Always try to negotiate a lower interest rate or find another card company that can offer you a lower rate. Pay off the debt that can be paid off first. Remember to make it automatic to deduct your payroll for repayment.
Automate donations to charity as well!
CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.