"Pay yourself first" how many times have you heard that phrase?
10x, 100x, 1000x times?
And have you ever wondered why it is so difficult to implement this simple concept?
That's exactly why it's a good idea to automate your saving and investing, so you don't have
to realize at the end of the month that you haven't reached your savings and investment
goal again.
So that you can implement it immediately and easily, I'll show you today 6 simple steps
how your savings and investing can switch on autopilot and you hardly have to worry
about it.
Just by automating my savings and investing, I've been able to build a mid 5 figure investment
portfolio over the last 10 years completely on autopilot.
But before we get to the main topic of the video, first of all welcome back and if you
are new on our channel...
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Let me explain why it's important to automate your saving and investing and why it can help
to really put the "pay yourself first" principle into action.
Why automation helps you save more money and build wealth is largely psychological.
Everybody knows it: The salary comes to your account and immediately money goes out of
it: rent, subscriptions, insurances and so on.
But not only that, we are faced with the decision to get satisfaction in this moment by buying
something we really want or we use this money to build up our emergency fund and our investment
portfolio.
Since 90% of our decisions are in favor of our current situation, because our current
situation is more important to us than our future situation, 90% of our decisions will
be in favor of the former: Namely, to buy something we want now.
This phenomenon is also called "Present Bias".
And this is exactly why automating saving and investing is the game changer, because
it allows us to eliminate this decision and takes away the possibility to choose whether
to save and invest or spend our money on something else.
Why this is important, to be sure to pay yourself first and do everything you can to make it
happen, is easily answered: If you don't, you're risking your financial future and your
future in general.
There are other reasons why you should automate your savings and investments: It prevents
you from spending money that was intended for other purposes, it takes the decision
out of your hands, it saves you time and nerves, and it prevents you from making stupid buying
decisions.
And in the next few minutes I'll show you the 6 steps to automate your saving and investing,
what you should consider before and at the end I'll give you 3 keys to choose your investments.
#1 Make your financial planning and decide your objectives
The first goal you should aim for when you start automating your savings and investing
should be to build up an emergency fund of 3-6 months salary before you start investing.
But more about that later...
The #1 step is to set your objectives and do some basic financial planning.
So what are you saving for and how much do you need?
So for example if you want to build up an Emergency Fund of 3 months salary and your
salary is $2000 you need a total of $6000.
Now your financial plan comes into play, because there is no point in setting an unrealistic
time window of say 1 year if you can only save $200 per month.
So make a plan where you list your complete income and your complete expenses and then
see how much you can really save.
A good rule is 10-15% of your salary.
If you don't reach this, it is also a good idea to first see where you can save money.
#2 Create A Seperate Savings Account The 2nd step is now to deposit a separate
savings account.
This is quick and easy to do and the advantage should be clear, because if you just try to
save money on your normal checking account you will fall into the same trap again and
the money will be gone faster than you want.
You can simply create a separate account for this at your bank or use an app like Mint
or if you don't mind, you can also open an account at another bank.
Meanwhile, there are many online banks that offer a savings account without fees.
Ultimately, the choice is completely up to you, just make sure you don't have to pay
too high of a fee, since we want to transfer money every month.
#3 Set up the automated payment The 3rd step is after you have opened a separate
savings account, to set up the specified percentage amount as an automated transfer from your
checking account to your new savings account.
The percentage amount is determined by your current financial situation and the objectives
you want to achieve.
Let's stay with the example that you want to build an emergency in the amount of $6000
and you can save $200 every month, which is exactly 10% of your salary.
Now you set up an automatic transfer exactly on the day when you get your salary of exactly
$200, which will be automatically transferred to your savings account.
Important: If you don't currently have an Emergency Fund set up, you should look at
the next steps, but focus on saving an Emergency Fund before you go any further and automate
your investments.
#4 Create An Investment Account If you have now saved your Emergency Fund,
then the time has come when you should invest a part of your savings rate to build up wealth
in the long term and also protect your money from inflation.
The 4th step is similar to the 2nd step and is just as easy and quick to do.
Many brokers have now removed commissions and fees and many now offer a wide range of
ETF's and funds to invest in and at the same time even with small amounts the investment
capital can be differentiated across multiple asset classes.
However, it is also important here that you create an investment strategy that suits you.
As an example, you can simply invest in an ETF or fund or you can also build your own
portfolio with individual securities.
If you do not have a strategy yet, then save the video above right, there I present one
and otherwise I show you the 3 factors that you should consider in your investment strategy.
#5 Set up the automate payment to your investment portfolio
The 5th step is now to create an automated transfer from your savings account to your
investment account.
To do this, you must first decide what percentage of your savings you want to invest.
For example, if you save $200 every month, which is 10% of your monthly salary, you could
split this $200 and transfer $100 to your investment account automatically.
This way, 10% of your salary will be automatically saved and invested every month.
#6 Track saving, spending and investing.
This step is just as important, if not more important than the others, because once you
have this system in place the next step is to actually follow through and that works
best when you track your progress.
But not only that, tracking also has the advantage that you have the possibility to optimize
your finances at any time, for example, if you notice where you spend money unnecessarily
every month, such as food or electricity.
To do this quickly and easily and have everything in one place, we have created our personal
finance tracking sheet and make it available for free, just click on the link in the video
description or in the pinned comment.
But now again to the criteria that can help you to find a suitable investment strategy
for you.
Your investment strategy should take into account your risk profile, your investment
horizon, your current financial situation and your emotions in general.
To answer this for you, 3 questions help: 1.
how unsettled would you be if the market fell 20% or more and took your account with it?
2.
What is your current financial situation?
Do you need money now or in the near future?
Don't invest money you are not willing to lose.
3.
How long will you be invested?
So to summarize the 3 factors again: It's about your risk tolerance, your current financial
situation and your investment horizon.
These 3 factors should influence which investment strategy you choose.
If you want a detailed video about these 3 factors, write "3 factors" in the comments.
And if you want to know 5 ways how you can effectively increase your savings, watch the
video on the right now!
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