Financial Basics Part III: Automatic Wealth

I realized looking through the site that I have neglected to finish some of the basics so I am going to work on populating the rest of the Start Here: Read First topics.

One of the key things I learned as a financial planner for the wealthy was automating investing and savings.  Most people tend to spend all the have and then try to save money or invest and what happens 99% of the time is there is no money left for it. 

So the key to easy investing and savings is through Automatic Wealth or the "Pay Yourself First Principle".  This simply means that all savings and investing is automatically withdrawn from your income sources before you ever see it.  This way the money is already saved or invested and you are forced to live within your budget. 

For example:  Every pay check I have money deducted for my ING savings account, my 401(k) and my Roth IRA.  I never even see the money.   Therefore their is no temptation to spend it on other things. 

Another benefit of Automatic Wealth is that you learn to live on less.  I here the same excuses all the time:

"I don't have any extra money to save"
"We'll start investing when we get out of debt"
"When I start making more money, we'll start saving." 

But the truth is these people are usually overspending.  One of the first things I did with clients just starting out was to have them write down every single penny the spent for one month.  The results were amazing.

$100 per month on premium cable
$250 per month on Starbucks Coffee
$300 per month on lunches and snacks at work
$100 per month in extra fees (Movie rentals, extra insurance on credit cards and checking accounts)

With most people I could find $300 per month of extra income that was being wasted.  By simply taking a sack lunch and coffee from home, we could add almost $400 per month of income. 

When I first started, I thought there was no way to save 10%.  Then after a year, we found it easy and began saving 15%, then 20% and every time I got a raise instead of buying bigger toys, we increased our savings and investments. 

A great new program that we are using is called Mvelopes, click on the Quick Tour link for a demo video.  Mvelopes is a a fully integrated financial management system that breaks your income down into spending "envelopes" and keeps you on budget.  It also offers a free full service bill payment system "you can pay any company or individual, schedule automatic or recurring payments or transfers and receive, view and pay your bills all online" 

It also allows you bi-monthly billing that will help you automatically pay off your mortgage and loans quicker.  And throw in an anytime mobile access that you can use your cell or PDA to make transactions with.

All this for about $11 per month. 

On average, Mvelopes users save an additional 10% per month.

Why do I support this product so much? 

It establishes the "pay yourself first" principle, it ensures your bills are always paid on time, it allows bi-monthly payments and it keeps you on budget. 

I've used Quicken and Microsoft Money and they simply do not compare. 

The whole point here is to automate all your savings and investing, as well as bill paying and then keep careful track of your budget. 

Along with Mvelopes there are two great books that explain the power of this concept further:

Four Laws of Debt Free Prosperity
Automatic Millionaire