Yahoo Finance ‘Automatic Millionaire’ Author David Bach Says Budgeting Is Not a Good Long-Term Financial Solution — Here’s What To Do Instead
When you ask money experts about the best ways to get your financial house in order, creating a budget almost always lands at or close to the top of the list. After all, accounting for your income and tracking your expenses is the only way to create a spending plan that matches your savings goals, right?
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Well, that depends on which money expert you ask. If it happens to be “Start Late, Finish Rich” author David Bach, the answer might surprise you.
A member of the GOBankingRates 100 Most Influential Money Experts list, Bach thinks a budget is more likely to thwart your financial goals than help you reach them. While that’s an unconventional perspective, to say the least, Bach is a bestselling author and one of the most sought-after speakers in the world — so it’s a perspective worth considering.
So, Wait. I’m Not Supposed To Budget?
On his website, Bach bucked the most fundamental personal finance conventional wisdom when he wrote, “Don’t budget — you’re too busy, and you will just get frustrated and fail.” That’s probably welcome advice for anyone who wasn’t looking forward to scouring their bank statements, examining their credit card bills, searching for unnecessary expenditures and counting every penny.
But if you’re not assigning a purpose to every dollar you earn, then how do you keep track of it all? “Instead, automate your financial life,” Bach wrote. “When it’s automatic, you can’t fail.”
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Keep an Hour’s Worth of Earnings for Yourself Every Day
Bach’s theory of monetary automation starts with an act of financial selfishness. “Pay yourself first,” he wrote. “At least an hour a day of your income — you’re going to work 90,000 hours over your lifetime. You should keep at least an hour a day of your income.”
This isn’t a new concept for Bach. In an exclusive Q&A with GOBankingRates, he offered the same wisdom when asked about the one piece of money advice he wishes everyone would follow.
“The biggest advice I give is to automatically pay yourself first [the equivalent of] one hour a day of your income,” he said. “If you start when you are young, becoming financially free is easy.”
He offered an example of someone who earns $10 an hour. “Save $10 a day — $300 a month — for 40 years and earn 8% [interest] — less than a boring balanced account has earned over the same time — and in 40 years, you could have $932,603,” he told GOBankingRates. “That’s $10 a day.”
The key is to start now to let compounding work its magic.
“What happens if you wait 10 years?” he said. “Good question — you will have less than half the amount: $407,819. What if you wait 20 years to do this and only can save this amount for 20 years? You will sadly now only have $164,743.”
Investing Is More Important Than Budgeting
Bach believes you’ll be better served using the time and effort you would have spent budgeting to put your money to work. “Be an investor, not a borrower,” he wrote on his site. “Investors get rich, borrowers stay poor.”
But when you put your money in play, stick with what you know. “Never invest in things you don’t understand,” Bach wrote. “If the investment can’t be explained to you on one piece of paper, it’s too complicated. Pass.”
Another key is patience — resist the urge to chase fast, easy gains. “Invest for the long-term,” Bach wrote. “Building wealth takes decades, not days.”
After all, investors who jump in and out of positions attempting to buy at the dip and sell at the peak almost always lose in the long term. “Don’t try to time the market,” Bach wrote. “It won’t work. Investors who time the market always fail.”
Finally, don’t bet with the brokerage’s money. “Never invest on margin,” Bach wrote. “Leverage kills you when things go wrong.”
Wealth Generation Starts Close to Home
Where and how you live will also determine your success or failure — and your house just might be your best investment.
“Buy a home, don’t rent,” Bach wrote. “Renters stay poor — homeowners and landlords build wealth.”
When you do finally build wealth, you’ll notice a lot of outstretched hands from people who assume you have plenty to give away. Learn to say no.
“Don’t lend money to friends or family,” Bach wrote. “You will lose both — and you’re not a bank.”
How You Live Will Determine How You End Up
Your house and your relationships play a role, but your financial habits will make or break you in the end. “Always spend less than you make,” Bach wrote. “Your life will be much easier and less stressful.
Also, truly successful people tend to view charity as an investment. “Give back,” Bach wrote. “Because the more you give the more you grow — and you make the world a better place.”
Finally, never forfeit the ground you’ve gained. “Once you become rich — stay rich,” Bach wrote. “It beats starting over (ask anyone who has had to).”
But if you do have to start over, do it as often as it takes. “Never give up,” Bach wrote. “No matter what happens, no matter how many times you fail, as long as you get up and try again, you haven’t lost.”
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This article originally appeared on GOBankingRates.com: ‘Automatic Millionaire’ Author David Bach Says Budgeting Is Not a Good Long-Term Financial Solution — Here’s What To Do Instead
