I was recently asked, “How would you advise complete beginners on saving money and investing?”
Having studied many books on this topic, I’ve found this to be the best piece of advice: automate your finances.
The reality is, most of us struggle with the willpower or discipline needed to consistently manage our spending. We often fail to track expenses, sometimes overspend our bank balance, or even “accidentally” slip into overdraft on our credit card account.
When it comes to investing, strategies like Dollar Cost Averaging (DCA) – regularly buying stocks and other investments – are proven methods to build wealth. However, if we rely solely on our self-discipline, there’s a high chance we’ll either forget or spend the money we intended to invest.
As creatures of habit and impulse, the best way to achieve financial goals is by minimizing the need for willpower. Automation is the key.
Let’s say your objective with each paycheck is to invest 10% in the stock market and save 15% for home renovations in two years.
The smart move?
Automate these allocations. By setting up your bank account to automatically transfer 10% of your salary into index funds and 15% into high-yield savings account as soon as your salary arrives, you eliminate the temptation to overspend.
This ‘out of sight, out of mind’ approach makes saving and investing seamless.
This strategy is inspired by the book “The Automatic Millionaire.”
If your New Year’s Resolution is to read more and upgrade your financial knowledge, I’ve something special for you to make sure this resolution don’t become just another set of forgotten goals.
Introducing the Steady Compounding Book Club – a platform where I’ll share my personal reflections, detailed notes, and engage in discussions on each book I delve into.
Ready to embark on a journey of growth and wisdom?
>>> Click here to be part of the Steady Compounding Book Club
Speak soon,
Thomas