The Foundation to Building Wealth

When it comes down to it, finishing rich is simple. All you have to do is make a decision to do something that most people don’t do—to Pay Yourself First. And if you’re starting late, you have to Pay Yourself First…Faster!

It really is that simple.  It’s just not easy. The catch is that you have to know what Pay Yourself First means and then you have to do it. And if you’re not where you’d like to be financially at this point in your life, chances are you don’t.


“Pay yourself first” means just what it says.  The next time you earn a dollar, before you pay anyone else any money they may have coming to them—before you pay the government its federal or state tax, before you pay your landlord the rent or your bank the monthly mortgage—you must pay yourself first.

The fact is that most of us pay everyone else before we pay ourselves. The first person we pay is the government through our withholding taxes. Then we usually pay the rent or our mortgage and the rest of our bills.  If anything is left at the end of the month, then maybe we pay ourselves by putting a few dollars into a savings or retirement account.

Unfortunately , this approach simply doesn’t work. For one thing, by letting the government take its portion first, there’s often not enough left over to pay yourself much of anything.


Fortunately, there is a way to pay yourself before you pay the government, a way where you don’t lose a third of your paycheck to taxes. And best of all, it’s legal.  It involves opening a PRETAX retirement account and putting a portion of your salary into it. Every dollar of your income that you deposit (up to certain limits), as long as it stays in the account, is not subject to any taxes. And neither is any of the interest (or capital gains) that you earn on it.


My suggestion is simple. Starting today, you should work at least one hour a day for yourself. This means you should Pay Yourself First for your future by putting a minimum of 10%-12.5% of your gross income or 1 hour a day of your income into what we call a pretax retirement account.  For Business owners this would be 10% of your gross income or 1 deal a year (or 2, 3 etc.. depending on your specific situation).


The single most important investment decision you ever make may well be how much to automatically Pay Yourself First into your retirement account.

If you are already enrolled in your company’s retirement plan or have set up an IRA plan, SEP IRA etc…, congratulations. But that doesn’t mean you’re done yet.  Now you need to find out how much you are using it.  Are you saving 4%?  That’s about what most people do.  Unfortunately, most people retire poor, dependent on Social Security or family to survive. You are not most people.

In a perfect world, the fastest way to become rich is to MAX OUT THE PLAN. Here’s the maximum allowable based on current tax law:

  • IRA/Spousal IRA – $5,000
  • 401k/403b Plan – $17,000
  • SEP IRA – $50,000
  • Solo 401k – $50,000
  • Defined Benefit Plan – $200,000

Now, it’s okay to start off slowly, saving a smaller percentage of your income at first, and gently working your way up to where you need to be. Even if you think the best you can do is to save just 1%, don’t let that stop you. Anything is better than nothing.

At the same time, try to be ambitious. After all, this is your future we’re talking about. However much you think you can afford to Pay Yourself First for your future—do more. If you think you can save 4%, save 6%. If you think you can save 10%, save 12%.  Most of us tend to underestimate how much we think we can manage. As a result, we wind up low-balling ourselves … and our futures.


To be honest, not everyone is as enthralled by the idea of Pay Yourself First as they should be. In fact, it makes a lot of people angry. You may be one of them.  Please trust me on this.  Nothing will help you achieve wealth until you decide to Pay Yourself First.  Nothing.  You can read every book, listen to every tape program, order every motivational product, subscribe to every newsletter there is, and none of it will get you anywhere if you let the government and everyone else have first crack at your paycheck before you get to it. The foundation of wealth building is Pay Yourself First. So what are your next steps?

  • Decide to Pay Yourself First for your future.
  • Open a retirement account
  • Fund it with at least 10% of your gross income (1 hour a day of your income)

I hope that you found this information helpful and that you will make the decision to start paying yourself first TODAY!

Live Rich,
David Bach


33 thoughts on “The Foundation to Building Wealth

  1. I am currently receiving unemployment at $423.00 a week. Any ideas on how I can make this work for me?

  2. Great advice. Issue am having is my wife is W-2 employee at company that has no defined benefit plan and we make too much to qualify for pre-tax deduction on the IRA. Any advice?

  3. This is so hard to do and figure out how to pay bills as well, but I am giving it my all

  4. Many thanks. Your books are superb too. I very much appreciate your email reminder about savings. Your advice even in your great Workbook I recently went through is similar and perhaps better explained on a balanced portfolio. Your Perfect Pie approach in your other book is so illustrative too! May the Almighty Bless you and your Team,

    Do you think we should also invest on equities (ratio wise) knowing the Eurozone crises and slower economical pace in US?

  5. David,
    Thank you for this refresher! I have been thinking about increasing my investment amount from 10% to 12% or 15%. Your advice is just the nudge I needed. If you are wondering how to find the money, then consider what I did. Every week I bought pizza for myself and friends. I then had an aha moment, I can order less pizza and start paying myself first and save for my future. It has been several years & I don’t miss the pizza nor the extra weight. Now I cannot imagine not saving money every pay period.

  6. Luckily I came across Automatic Millionaire straight out of school and my wife and I immediately began paying ourselves first through our 401k’s. However, we recently moved abroad and are no longer eligible to contribute to pre-tax investements (401k, Trad IRA). Our country of residence does not have an income tax and our full salaries are exempt from paying US taxes. My question is: Are we able to contribute to a Roth IRA and take advantage of this seeming 100% tax free investment loophole?

  7. Wondering if a wage-earner opens a business on the side, hoping to grow it, can he/she contribute to both a solo 401-K /SEP IRA and to the 401 K at the full-time job?

  8. This sounds great and I want to jump in and do it, however you didn’t mention those who have credit card debt and are “dolping.” Isn’t it more wise to pay down debt first? Do you advise those with credit card debt to open an IRA also?

  9. Hi David,

    This is great! I’m looking forward to the day I can set up an SEP rather than working for someone else and contributing to a 401(k). The company is just starting to take off while I continue to work full-time for someone else.

    Thank you for the encouragement!


  10. My wife and I used this when I read your book Automatic Millionair. My wife and I start with a dollar a day because my wife and I were just getting by on our salaries due to bad spending decisions. But when month two came up we double it 2 dollars a day, month 3 three dollars a day until we reach 65 dollars. it really was not that hard. Now we have a great retirement fund going. We still are adding and growing our wealth. Thank you David Bach, My wife and I are looking at an early retirement thanks to you. We also have made many more advance in our wealth building. Your program has work great for us Canada. Thanks.

  11. What kind of retirement account do you use if you own a business but have employees , but can’t afford to give employees the option?

  12. This is great i have been working all the time without paying myself but tomorrow i will open aan account for my pay slips .
    Thank you for the wonderful article.

  13. this is great advice—I just wish I had heeded it many years ago. My question is do you prefer a Roth IRA or the standard IRA. I have both, the standard IRA is the result of a 401K I rolled over when I left a former employer. Now my contributions go to my Roth because I see higher tax rate in the near and foreseeable future. What do you think? By the way, I just turned 61.

  14. I’m a retired baby boomer. How can I make my money grow in retirement? What do you suggest?

  15. I’ve put at least 12% in a Govt. retirement fund. I’ve got a good retirement plus the 401k. I’ve retired and now what. Do I leave the money there til 701/2 or do I take withdrawls? Where do I move it to to get the least tax taken from it?

  16. Hi, David! I have almost all of your books. I think there is only two (one is the financial words) that I do not have. As far as paying myself first, I have an auto deduction monthly with my bank to take a set amount out of our checking to go into our savings account. I know that is not the best way but it is better than nothing! We have a couple of extra mouths to feed now so it is pretty hard to do more at this time.

    Thanks for all your good information!
    Dee Cook

  17. This really does work. I’ve lived on a shoestring budget all my life but I have been paying myself first for quite a while. My goal was not to finish rich, but to finish comfortable and it looks like I will be able to do that. You work hard and should be rewarded when it comes time.

  18. It may be hard to do…. but try having fewer bills… With everyone I see there is always some bill they are paying that they do not have to have… Take cell phones for instance… I do not have one… The internet gives me all the communication that I must have…

    Its not fun.. not having a phone. I will admit at times it does make life easier… so get a prepaid cell that is what I did and I pay $105 a YEAR to have that.. All the while I save about $1000 more a year over the traditional smart phone / cellular device that most people are paying.. *Winning*

  19. David, Great advice! I have been following your guidance for some time. As I started a bit late in life, I put the maximum amount away for the last few years, and have been able to retire early, aged 57. Even more importantly, I have encouraged my two boys to follow your principles and they are putting away 15% already, and as they are both still in their twenties, this will start them off so well. thank you

  20. read ur book automatic milliniore and start late finish rich. i divided my portfolio in to 2 .1 putting 75% in large cap index fund dividened payout 2 25%in bond index fund growth option and mmmf daily dividend reinvested.i made it automatic

  21. Wonderful article! My son put it to work right away. Are the questions presented by the readers answered somewhere else?

  22. Yes, you should absolutely open a retirement account even if you are in debt! After more than two decades of experience teaching people about money, I have come to believe with all my heart that it’s a big mistake to put off saving money until you are debt free. If you do, you may never get started saving. But if you’re in credit card debt, you need a different plan. Here it is: whatever amount you decide to Pay Yourself First, split it in half. Put 50% in your retirement account and use 50% to pay off your debt. Once the debt is paid, you can revert to Paying Yourself First with the full 100%.
    If you make $50,000 a year, Paying Yourself First 10% would mean setting aside $5,000 a year or $416 a month. But if you have credit card debt you’d split that in half, putting aside $208 a month and using the other $208 to pay off credit cards. This system lets you feel like you’re working for the future while erasing the mistakes of the past. So the rationale is as much emotional as financial. I call this my “Bury the Past, Jump to the Future” system. Try it. It really works.

  23. thanks alot for ur information..,now i got the problem that i lost my SSN,so i cant even open an a/c. in the bank.
    do you have any idea of how can i get back my SSN ?b’cause i’m not US citizen.. i’m indonesian.
    i ever had my SSN when i was stay in US 2001 ago.
    thank you.

  24. A noble idea. Have been doing it but at a small scale. Thanks for reminding me never to mind increasing it to a large scale coz its my future. I know I will make it with or without challenges. Keep up the spirit and educate us more.

  25. David, I just started working permanent after being off &on unemployment for the last 5 years. My employer will match $0.25 for each $, up to 6% after one year of contributing. Should I invest 6% and put the 4% somewhere else? Also, I’m over 50 and getting starting late. What advice do you have?