How many of you read the title of this article and said “Oh no! Not that again!”?
If you’ve ever attended any kind of financial seminar or read any books on money management, you have been told that you should consistently be putting a set amount of your income into savings. We all know that we are supposed to be putting away money every single month. Still, the reality is that an extremely small percentage of us actually do it.
So let’s just be extremely clear – no more beating around the bush… If you are not willing to make the commitment to automatically pay yourself first—every, single month without exception—you will NEVER build any kind of financial security, let alone wealth.
Take a moment and think about all of the people that you pay automatically each month. Most of us who work in any type of job pay taxes to the government. These funds are automatically removed from our paychecks. Many of us have also set up a variety of our household bills to be paid automatically out of our checking accounts each month. Why do you think the IRS has arranged to have your taxes taken out of your earnings before you even see the money? The answer is simply that they recognize this is the only way to ensure that they receive what they are owed. You set up your bills to be paid automatically also to ensure that the respective companies receive what they are owed. This eliminates the possibility that you will forget or get too busy to make the necessary payment. We need to change our psychology that has us putting the government and the phone company and our cable provider ahead of ourselves and our financial security.
I am sure that every person reading this article has thought to themselves, “I’ll start putting some money away as soon as I start earning more.” As artists, we can be especially guilty of this mindset. I also hear repeatedly from students and coaching clients that, because their earnings are so sporadic, they can’t figure out how much they can put away each month.
It is time to realize that these are just excuses, and as long as we continue to make excuses we will never change our financial picture.
The first step is to open what I call your Wealth Account. The purpose of this account is to build up funds that will ultimately be used to purchase assets. Assets are not stuff—bigger homes, nicer cars or fancy stereo systems – assets are things that you own that you are expecting will increase in value and/or create passive income: investment properties, businesses, stocks, bonds, etc.
It’s important to recognize that your Wealth Account is not an “emergency fund.” The goal is to avoid taking money from this account for any reason other than to purchase an asset that will make you more money.
Once your account has been opened, decide how much you are going to put in it each month and immediately arrange to have that amount automatically transferred into your Wealth Account from your checking account. How do you decide what amount? I recommend that you look at your deposits for the last six months and determine what your average monthly earnings have been. Once you have that amount, take 10% and make that the dollar figure you will deposit into your Wealth Account each month. For instance, if you’ve earned an average of $2,000/month, $200 would be a reasonable monthly Wealth Account deposit. If that number feels too high, or your earnings right now are incredibly sporadic – start with 5% ($100), or even 2.5% ($50). Just promise yourself that you will re-evaluate that figure after 3 to 6 months and see if you are comfortable increasing it.
This month make a commitment to yourself to do the following:
Create a written statement regarding your decision to pay yourself first from this point forward. The wording could read:
“I am committed to building the foundation for my wealth. I will therefore open a wealth account with ______________ (Financial Institution) by ____________(Date). I will structure this account to automatically debit $ _______ from my checking account every single month.”
Sign and date this statement and place it somewhere you will see it every day. We recommend keeping a copy wherever it is that you pay your bills. Even when it feels like all of your money is going to other people, this will serve as the constant reminder that you have chosen to be financially proactive and that your wealth account is growing.
If you don’t already know where you want to have your wealth account, sites like bankrate.com can help you review the account parameters and interest rates currently being paid by a variety of institutions. I suggest opening this account in a different place than where you generally do your banking! This will help you avoid dipping into your wealth savings. Unless you already have a balance you want to transfer, you are probably looking for an institution with no minimum deposit required to start. There should be absolutely no monthly fees and if offered, I recommend declining a debit card attached to the account.
Here is a promise: Once you have gotten your monthly deposits set up to happen automatically, you absolutely will not miss the money. Over and over again clients tell us that they have no idea what they were doing with the one, two or three hundred dollars a month that they obviously used to be spending but that is now going straight into their Wealth Account.
As this account builds, you will notice yourself gaining interest in learning about possible investments for your money. You’ll find that you always have an ear out listening for potential financial opportunities. Your excitement and your commitment to building your wealth will grow as you start to realize that you will soon be able to afford that first investment.
Please e-mail us and let us know that you have opened your account and what amount you are committed to depositing each month. Putting your promise out there to someone other than yourself will absolutely help you to stick to it and we love to hear your success stories!