The Automatic Millionaire Blueprint (Make It Automatic)
Automatic millionaire blueprint. I'll go back to the McIntyres. Beautiful part of what I'm about to teach you today is that a lot of this, you already know it. Some of it you're doing. And a lot of it just needs to be done better. Automatic millionaire. The idea is all about how money flows in your life. And the common thing, by the way, that people say, the most common, you should write these words down 'cause I hear 'em everywhere and you probably sometimes say it. I don't know where the money goes. Everybody's laughing like, I don't know. I know I'm making money, and then all of a sudden I get to the end of the month and there's nothing left. Or I get to the end of the year and it's all gone. It's the single biggest thing that people say. When we sit down as financial planners and people go, I don't know, I mean look how much money I'm making and I don't know where it goes. Well you need to know where it goes 'cause here's the whole key to your money, I'll show you this in a little ...
bit. If you don't have a plan for your money, somebody else does, you should write that down too. If you don't have a plan for your money, somebody else does and there's a whole lot of those somebodies. Everybody out there's got a plan for your money, so if you don't have a plan, somebody else does. So here's the plan for your money. When you earn a dollar. The first thing that you do with the dollar that you earn is you do something very magical that changes your life. And it is called, pay, you're gonna hear me say this a lot. Yourself. First. I'm gonna totally dive into what pay yourself first means, but just not at this moment. But here's the key to pay yourself first. Pay yourself first means when you earn a dollar, the first person, the first place your money goes, the first person who gets paid is you. Now, what does that mean, the first person who gets paid is you? That means that money goes directly from wherever you're earning it right into a retirement plan. That could be a 401(k) plan. That could be an IRA account. If you're self employed, that could be, I'm gonna go through all this today you guys, that could be a sep IRA. That could be a solo 401(k) plan. This could be a defined benefit plan. I will cover all of this today. This could be a 403(b) plan, you might be a teacher. Or a nurse, this could be a 457 plan. The key to pay yourself first, is that money moves right from your paycheck, directly into your retirement account. It needs to go there directly so that you don't pay taxes first. Because if you don't put money in a retirement account first then you pay taxes first and I'll show you what this looks like in a little bit too. How many of you are familiar with paying taxes? Yeah. It's the only legal way to get out of this. The number I just showed here is five percent. And by the way, again, all of you at home, you got the blueprint, this sheet's in your blueprint. This is the first sheet in your blueprint. Five percent is not what I want you to save. That's not your goal. This is more than the average American is saving now. The average American is saving somewhere between three to five percent, those are the ones that save. I want you to save more than five percent, later on I'm gonna show you that what I really want you to save is between 10 to 15 percent here. And I'll go through why, 'cause it's one hour a day of your income. Show you what that looks like. But I want you to start. So I want you to at least start at five percent. Now, if you said to me, there's no way I could start with five percent, then start with one percent. And then bump it up. One percent a month, just start. Just start, because, I have to tell you that saving money is just like exercise. If you wanna go run a marathon, you're not going in and getting up tomorrow, no matter how motivated you are, I don't care whose seminars you watch and who you see on television, how pumped up you are. You're not running a marathon from scratch. It's not happening. You're probably not running 10 miles from scratch. Right, like right now I would probably need to go run a block. (audience laughs) You gotta start somewhere. The key thing though, is this is number one, you're paying yourself first through using your retirement account. I will show you later where the money goes, what the investments can look like, the different solutions for you. Just know the first step is pay yourself first. The second step. Your money automatically, from your salary. Keyword here. Automatic, all this is automatic, let me see. How's the money moving?
Automatic. How's money moving at home? Automatic. You're gonna automatically deposit your paychecks. How many of you right now automatically deposit your paychecks, show of hands in this room. You don't automatically deposit, are you self employed?
Okay. So this is how the world has changed, by the way, it's interesting, 'cause in this room every hand just went up, in a traditional room of 100 people, about 60 percent of hands will go up. It's shocking to me. Some people still get paychecks, I don't know how that's possible, but some people do. Don't, get get your money automatically deposited into a checking account. Once that money is automatically deposited in your paycheck, you're gonna use online bill pay. How many of you use online bill pay right now? Okay. So you're gonna have online bill pay, we're gonna talk about that in a second. The first thing you're gonna do after you've paid yourself first, after number two where you've automatically deposited your paycheck, is you're gonna go to number three, and you're gonna build an emergency account. What's an emergency account? How many of you have heard of this idea that you should have an emergency account?
They say three months worth of expenses.
They say three months worth of expenses. First of all, I think you need more than three months of expenses satisfied, I recommend six months now. Minimum three months, but I think you wanna get six to 12 months of expenses. More is better. Now people, the key to the emergency account. Your emergency money should not sit in the same account as your checking account. It should not be the same account as your ATM card. You need this money to be sitting in another account. Now you can do it at the bank, you can go to the bank you're already working with and say I want a separate savings account and you can move the money online automatically into a separate savings account, and you can put it online, you can literally go, emergency account. That's one way. Another way is actually move it to another online location. Another online savings account. I'ma go through different online savings accounts today too and show you ones that earn up to one percent. The key to the emergency account money, is no checking, no ATM card, and what's it for?
Emergencies. What does that mean, people go, David, what's an emergency, here's what it's not. You wanna re-landscape your house, no, that's not an emergency. You wanna redo your kitchen, that's not an emergency. Your car is six years old, you need a new car, that's not an emergency, literally. Unless your car has stopped running, emergency's an emergency. Now because these books I've written have been out for over 15 years in some cases, people who had no emergency accounts, built emergency accounts. And then when the emergencies hit them they've been able to come back to me and tell me what happened. I did this speech recently. I was in Florida, it was like 18,000 people at this stadium. And one of the guys backstage came up to me before I got on stage and he said, he was in tears actually, he was shaking, and he said you know, that emergency account saved my life, and I go, I'm all miced up, I go what are you talking about it, he's like, you drilled into my head, through reading your books that I need an emergency account. And I worked on it and I worked on it and I worked on it. And I got a year. And I lost my job. And I got sick. And if I had not had an emergency account, I would've been homeless. And so he's like, that cushion, that changed my life. And people don't spend enough time on this. And I tell people, look. I'll tell you. Five percent of your money coming in, kick it out to an emergency account. Now, I get you to number four. My dream account. Love this. What's a dream account? A dream account is another account. Again, it's not here. It's not here, it's not here. It's a separate account that you put money in for your dreams. People like, what's a dream? (audience laughs) Anything you wanna do between now and retirement is a dream, like what do you wanna do? I wanna go on vacation to Hawaii, great. I wanna buy my first home. Great, that's a dream account. I wanna put my kids through college. Okay cool, that's a dream account. I wanna take up piano lessons, that's a dream account. And I'm gonna give you a dream exercise later today. Part of funding a dream account, even if you don't know what your dreams are, is that once you fund a dream account, you get one. And then the other thing is people, once you start to have money in a dream account and those dreams come, you're like you know what, I got money for that dream. I took a year off in 2013, I took a complete sabbatical. I disappeared for actually 18 months. Some of you, if you pay attention you actually know. I didn't tell anybody, by the way, I was taking a year off, I didn't send out an email, we didn't do any Facebook stuff. I just went from like, working. To not working. And part of that happened because my wife asked me, what do I want for my birthday. And I said, do you wanna know what I want, I was very burnt out and tired and stressed out, I said I want a year off. And she looked at me, and she goes, you wanna take a year off, she's like what do you wanna do? I'm like, I dunno, I wanna take the kids to school and I then I wanna go to the gym and I wanna have lunch. And I wanna pick the kids up. I wanna do what you do, that looks pretty cool. (audience laughs) She's like, you know it's not as easy as it looks. I said, I don't know what I wanna do, I just want a year off. So she said well. Don't we do the stuff that you talk about in your books? I go, yeah, she's like, well do you have enough money to not work for a year, well, you know if we cut our expenses and, she said, wait a minute, I didn't say anything about you cutting our expenses. Can you afford to take a year off? I said yes I can. She said how many years, and I told her how many years I could take off, she's like fine, then that's what, we have the dream account, so take the year off. So I took a year off, by the way. That may be my next book. Taking a sabbatical was the most important thing I've ever done in my entire life, I wouldn't be here right now doing this if I hadn't taken a sabbatical. Because what it did was, I didn't know how tired I was until I took a break. I had been charging hard for ever, really. And that year, within 90 days it went from, I went from being tired, to not recharging my batteries but it's like my batteries got replaced. It changed my entire being, I went from feeling, at the time I think I was 47, I went from feeling to feeling 30 in 90 days. Some of you are exhausted. You know it, and you need a break. Sometimes that dream account can help you get that break. And that takes me to. Oh wait, what percentage. So as I start to go through these the question I start to get is what percentage goes into these things? I recommend on these dream accounts, anywhere from one percent to 10 percent. You have to decide how fast you want that dream being funded.
Quick question, when you're talking about the percentages, do you mean pre or post tax, we had a few people in the chat room questioning how they should do that.
Very good question. This number up here is pre. And the reason it's pre, you guys, is 'cause because you paid yourself first, you didn't pay tax on it. Everything else here is post. So then you're gonna have anywhere from one to 10 percent, then you're gonna have this category here. Credit cards and bills. Now, your credit card bills, where you pay the minimums. What I want you to do on the credit cards. I want you to be in a situation where you'll never have late fees. So what I'm about to say to you, I wanna make sure I'm clear here. I don't want you to only make minimum payments on your credit cards, we're gonna do a whole lesson plan on debt today. You make minimum payment on credit cards, on average you will spend 27 years paying off your credit cards. It's the biggest scam in the history of humankind financially is the way minimum payments are done on credit cards. I have bitched about this for so long. On PBS shows I've talked about it. I used to say your statements should show you what happens if you make minimum payments, and finally they did. So don't make just minimum payments but, I want you to make automatic minimum payments. So if you've got a minimum payment, let's just say that minimum payment is 50 bucks. I want you to go higher than the minimum payment, I want you to go, let's call it 60 dollars. Just giving you a number. And I want you to have your account automatically move the money to the minimum payments every month. Then I want you to make a second payment on top of that. Now that seems like an extra step. Why am I suggesting you do this extra step?
Faster, cut the interest.
It's gonna cut the interest but I don't want you to get stuck with late payments. There were 11.6 billion dollars last year just in late fees. The whole plan for you to get a credit card. The credit card companies, they have a plan. Here's their plan, they're gonna give you the credit card, you're gonna borrow the money, then you're gonna make a late fee, and you're gonna be late. They're gonna hit you with 50 bucks. American Express late fee, 50 bucks right now. Then they're gonna raise your interest rate 'cause they can once you're late, up to as high as 29 percent. They give you the credit card planning on you being late. They do not want you to pay your bills on time. So by putting the credit card payment on autopay, at least for the minimum payment, you will not be late. Every single time I do money makeovers and I go through bills credits cards, there are late fees in their credit card statements. Later I'll show you how to use Mint.com. When you use these online services then they see it. They send you a notice, hey, look what happened. Idiot, credit card company doesn't do that. But some of these services will do that, so I don't want that to happen to you. Then the next place your money's gonna go, it's gonna go to your regular bills that you pay automatically. Now, what are regular bills? I put in here rent. Car, phone. Movie membership, gym, utilities, mortgage. I want you to go through every single regular bill you have. You've always got it, it's every single month. I wanna look at who attached themselves to your paycheck. Now, if you can automate the bill, automate the bill. So like at my house, I have almost everything automated, I mean we've got our mortgage automated, our utilities are automated, our car is automated, my phone is automated, my gym is automated, everything I have here is automated. I can go on the road for a month, even though I do everything online today, like probably most of you, all I really have to do is check in and make sure nothing's gotten missed because 95 percent of my financial life is automatic. Even on my business, I'd say my business is 80 percent automated at this point. I mean there's always things that come up in a business that you can't automate. But the more you can automate the better. And that takes me to step number seven. Bucket number seven. And bucket number seven is charity. And I recommend automating for giving back for charity. When I wrote the Automatic Millionaire book, I ended the book on giving back. And that really sort of was almost like a spiritual experience for me because the book was finished and then I had a dream, about the need to end the book on giving back. And so I'm like okay, I have to talk about the research behind giving back because the concept of tithing, which is literally, I had this dream, I had to put this in the book about tithing. Tithing, people a lot of times think that that's a religious concept but tithing's been around forever. The idea is that the more you give back, the more you give out, the more it comes back. And one of the things I realized is that, the research actually shows that sometimes the wealthiest people, high net worth individuals, people who have a net worth of over 20 million dollars, when you dig into what common themes are, one of the most common themes is that they started tithing, giving back before they were wealthy. And I had heard John Templeton talk about this when, he's a multi-billionaire, he started with nothing. He used to give back a huge percentage of his income before he had any money. And so I thought, I have to end on the concept of giving back and automating it. But I put it down here, I don't tell you to automate for charity first. I just tell you to put something automatically towards charity. I find that people who automatically give monthly to charity tend to give money throughout the year. There's nothing wrong with giving it at the end of the year too, a lot of people do that. But I just add this in here as a seventh thing. At its core, this little roadmap, which is what the McIntyres basically did, there's only seven things to do. These are the categories, now there's subsets of these categories but again, number one is pay yourself first. Number two is have your money automatically deposited. Then number three, move the money automatically to a separate account, go to the dream account. Automatically pay those credit card bills, those of you who have credit card debt, I'm gonna show you later how to pay these off faster. Same thing with mortgages. Get the regular bills automated. And then we head to charity. And you, in a matter of hours, have put your entire financial life on autopilot.
So I wonder. On the credit card payment. Instead of paying it the minimum, why don't you pay it off to avoid all interest? Because if you have money put into your dream account, maybe you can use the dream account money to pay it off.
Very good question, so glad you asked it, 'cause I wanna make sure I'm clear on this. I don't want you to only make minimum payments. Everybody at home hear me, I do not want you to only make minimum payments. What I want you to do is automatically at least make a minimum payment. And then make a second payment to pay it off as fast as you can. Like for most people, if you just double or triple the minimum payment, you pay the card off in less than three years. But I don't want you to carry any credit card debt. I'm a realist, though. Here's the key, I'm a realist. Lots of you watching at home have credit card debt. Probably an average of 10,000 dollars. The average American family has 15,000 dollars in credit card debt. They can't pay it all off right now. So you've gotta have a strategy until, I haven't carried credit card debt since I was in my early 20s. I hate credit card debt because the rates are too high. Even if you said to me, I got this great credit card offer, it's zero percent, that's a ticking time bomb. Because again, they know if you're late once, they're gonna raise the rate on you. And most of those zero percentage rate credit cards are just teaser rates. They're good for a year. So you have to look at credit cards as like, a toxic illness waiting to come out. (audience laughs) This is just something waiting to hurt you. Credit cards are great if you pay them off every month. I am going to Aspen for skiing in March. With my son, with points. Love it, my tickets are free. The credit card companies hate me, I'm the guy that uses the card all the time and they still make money off me, but I don't have late fees or interest payments. So again, total clarity. You're gonna only make your minimum payments automatic so that you will never be late. But I want you to make another payment on top of that. Oh, key thing on the credit cards. I recommend these bills, that you line these bills up together. So if you have, average person who's watching has got at least three cards. Some of you have five cards. Some of you have seven cards. Some of you have 10 cards. Who here has three cards right now? Three credit cards, be honest. I have three credit cards, who's got five? Who's got seven? Anybody got 10? Nobody's got 10. I did a college course. And the kid had 17 credit cards. (audience chuckles) Can you believe that? That should be criminal that you could be at school, not have a job, and get 17 credit cards. I recommend these cards ideally get lined up with the date that coincides right after your paycheck. Let's say you get paid, like most people you get paid on the first and 15th. I recommend you call your credit card company and you have the payment come, pick the date, the payment could come the third, or it could come the fourth. And if you can't afford to pay all your cards minimum payments the first week, then you take another card over here, and you have it come due the 17th, or the 18th so that you know the money has hit your account and then as soon as it hits your account you can sweep it to minimum payments. You can call your credit card company and they will happily change your days. One of the reasons to put your cards on the same date, 'cause again, even though you've automated it, you won't screw up and you'll know what's going on. Most people have their credit card payments coming due completely randomly all over the month. It's coming due on the eighth, it's coming due on the 17th, it's coming due on the 22nd. And you're just reactive, all throughout the month on when you're gonna pay your bills. You don't have to be reactive because all these companies will gladly change the day your bill comes due if you just call 'em.
Again, freelance. Mine is probably gonna have to get to the point where I pay it off each month. I have them for business and then I have one that I use for.
So when you're freelance, very smart, you should have two separate cards, one for business, one for personal. Truthfully, what most people should do is use a charge card. So they're forced to pay it off every month. You need to be funneling money, when that money comes in, 'cause you're self employed, you need to be funneling money off into a credit card account automatically to pay credit card bills even if you don't have them.
Right, 'cause I'm gonna.
'Cause you're gonna have them. The hardest part about being freelance is you have to be overly disciplined.
That's been the hardest part.
Yeah, I mean the dream of being an entrepreneur is like, no one's gonna tell you what to do. The nightmare of being an entrepreneur is no one's gonna tell you what to do.
And that's how you get to the point where I am.
Yeah, all this has gotta be made automatic.
David, we had a couple of questions come up while we were doing this, I know we do have a lot to cover, I wanna move on and some of these things I know we're gonna get to later, but one quick clarification here, we had a lot of people asking about student loan debt, is that funneled in the same place as the credit cards?
Well, student loans really are funneled the same place as regular bills.
Just the monthly recurring?
Great question, I would put student loans under regular bills.