How to Build Wealth – $1,000,000 – with Automatic Investing (Part 3)

Oct 25

Image sourced by Eduardo Soares @eduschadesoares

Welcome Back!

Continuing our blog post series about automatic investing, we’ll share more ways to create your own system to build wealth of $1,000,000:

Separate Your Savings Money from Your Spending Money.

This straightforward wealth-building technique helps you position (allocate) your money for specific spending categories and accounts. And makes it easier for you to follow and achieve your financial plan.

Following my Child Support example, when I received the $500 every pay period, I don’t want to spend the newfound money on discretionary expenses.

No!

I want to make sure that I have the money available to transfer to my wealth-building account.

Separating your savings from your everyday spending money is crucial. Here are three ways to do this:

Automate Deposits: Deposit money into your investment account every month or twice a month. I transfer money into my investment account on the 16th of the month and the 1st or 2nd day of the next month, one or two days after my paycheck gets deposited in my checking account and the funds clear (become “Good Funds” which means they are available to use). Every month like clockwork! In fact twice a month, month in, month out. This ensures consistency and helps you stick with your financial plan and build wealth.
Transfer Money to a Savings Account or a Separate Checking Account: Move your savings to a different checking account, dedicated savings or investment account. Store the money in your checking account ‘for now’ – perhaps a few days or a week – but make note of the amount you have earmarked for long-term savings and investment and schedule a date to transfer your money to an account that’s designed for wealth-building. But, if your goal and objective is to invest your money to build wealth, make sure you Transfer the money from your checking account, savings account or money market account TO your investment account. Separating your money that you want to save and invest from your daily spending money, for example your checking account or cash hoard, makes it more difficult to spend it. Be sure to put your money to work for You!
Create a Pro Forma Check: Pro forma means ‘as if’. In other words, make a notation entry in your checkbook assuming (as if) you wrote a check or as if you were going to make a payment. The notation entry signals that you have earmarked money – your savings dollars or investment dollars – for a certain purpose. And the pro forma payment reduces your spendable dollars – the amount you can or should spend. You should Not use the money for discretionary spending, like a dream vacation to Europe. By earmarking funds you’ll be paying out to your savings account or investment account, you reduce the remaining available funds you can spend on paper – at least mathematically and psychologically.

Accountants call the balance in your checkbook or check register your ‘Book Balance’. In other words the amount of money you have based on your books and records, also called your general ledger.

In my system, spending money includes money you use for living expenses. Clearly, one way or another, you have to set aside money or direct money to fund your living costs.

Take all possible steps and safeguards so you Don’t spend the money you plan to save and invest. In other words, you should spend NO more than your account balance Minus the amount you plan to invest.

And be sure to transfer your investment dollars into your investment account – away from your checking account and daily spending money. That’s the key.

Now, keep in mind that I have an accounting background. . . And I keep my checkbook QuickBooks. My Dad gave me the QuickBooks software program years ago.

But Excel works just fine! We created a Check Register for you in Excel! You can grab it here.

Note – this concept (system) is Vastly different from managing your spending based on your actual checking account balance (or your credit card credit line unused amount).

3 More Secrets for Building Wealth

Consistency is Key: Whether you’re saving $500 or $50, the key is to stick to the plan every month.
Automate Your Investments: As we’ve been discussing, automatic investing helps you avoid the temptation to spend and ensures you’re consistently working toward your goals.
Track Your Spending: Monitor your checking account and personal budget using tools like Excel or accounting software, for example QuickBooks, to stay on top of your financial plan, achieve your financial goals and build wealth.

Final Thoughts

If I can save $1,000,000, You can too.

The secret to building wealth is creating a system that works for you, implementing automatic investments and sticking with your financial plan.

Take these steps, test them out, and let us know how it goes

In the next Budget and Grow Rich® blog post in this series, we’ll deliver a few more excellent moneysaving tips and wealth-building techniques to help you accumulate $1,000,000 and enjoy the life you deserve.

To Create More Free Cash, click here.

Let’s get to it. See you next week,

Arthur V.

Disclaimer: OH and Please Remember, we are Not financial advisors, financial planners, attorneys or accountants and are Not providing any specific financial, tax or legal advice here. Be sure to conduct your own due diligence and consult your own professional advisors to get sound professional advice that’s specific to your financial and personal circumstances, risk tolerance, time horizon and investment goals and objectives among other key factors!