Pay Yourself First

I've been thinking a lot lately about what's going to become of me in my old age. For many of you, that worry is years down the road. But I'm in my forties, so this subject is looming large in my mind. How can a single work at home mom with three kids to support hope to retire one day, when it seems there's never anything left over at the end of the month?

And that question, says author David Bach, demonstrates exactly where I've gone wrong. In his book The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich, his number one mantra is: "Pay yourself first." He claims there are six ways to get rich. They are, and I quote: "win it, marry it, inherit it, sue for it, budget for it, or" - and this is the magic step - "pay yourself first."

The key to making this work, he says, is something that most people don't do, and the reason that many will fail. You must "make it automatic." That means having the 10% automatically deducted from your paycheck, or making arrangements to have the amount withdrawn from your checking account each month on a set date. Bach stresses the importance of putting the money in a retirement account, placing the power of pretax investing behind your wealth building plan. In this way, you pay yourself before you pay the government.

Those who begin saving in their twenties, he says, are at a great advantage thanks to the "miracle" of compounding. But it's never too late. Those in their forties or fifties can still build up a nice little nest egg. They just might have to up the percentage that's automatically put aside each month. The main thing, he stresses, is taking action now.