Are You Making the #1 Financial Mistake?

After ranking top 3 in GoBankingRates’s Favorite Financial Expert of 2011 Poll (by the way, thank you again to all that voted!) they asked me to answer the question: “What’s the number one mistake people make with their money?”

So, instead of just giving a plain, vanilla, written answer, I rolled up my sleeves and shot a video so I could show you what I believe is the #1 financial mistake out there and how you can avoid or fix it in less than an hour!  In this video I walk you through how you can set up a system that guarantees you won’t have spent all your money on other things before you get around to putting your hard-earned dollars where they are supposed to go—to ensuring a richer future.

If you follow the action steps in this video and use the diagram that I show you, you will truly have a foolproof, no brainer, “set it and forget it” financial plan that, I promise you, will work! The plan to avoid this #1 money mistake is based on my New York Times Bestseller, The Automatic Millionaire and is updated for 2012. So, as I said watch the video, follow the diagram, it’s easy and, YES YOU REALLY CAN DO IT – so GET STARTED!

Hope this video helps you all and remember to let me know how great you feel once you “MAKE IT AUTOMATIC” by commenting below or on my Facebook.

Live Rich,
David Bach
 

TAM DIAGRAM PICTURE

59 thoughts on “Are You Making the #1 Financial Mistake?

  1. Very informative video. Lots of great
    information and advice. One question: How do you do this if all you paycheck goes to bills and you hardly have anything left to live on?

  2. This is a great video. Very easy to follow. Great idea to be an Automatic Millionaire. Thank you. BUT what if you don’t have enough pay to automatically pay all of your bills because you have gotten yourself into too much debt?? Bad choices = bad debt.

  3. My husband and I are in a situation where his company has cut his pay so our income pays or bills, we hardly have money left over for groceries. But I have set our credit card on autopay and we pay double the min balance (for a year now) and in 6 months it will be paid off. This will give us flexibilty in our budget to put money into savings. It has been tough and we have made some sacrifices but in the long run – it will benefit our family.

  4. GREAT stuff! I hadn’t considered a dream account until review this video! Thanks for sharing!

  5. Great information David. I am a tipped restaurant employee which all my tips received are cash, should I make my deposits daily to the bank or once a week and use your automated system after the cash is deposited in my bank.

    Thanks,
    Robert Sarafian

  6. I want to invest my money so that it could grow but I am not a citizen of the United States so I dont have a Social Security #. Please help.

  7. That’s where percentages work very well. You may not have 10% to put to retirement, but you can get into the savings habit by putting a smaller percentage– say 1%– of everything you make to a specific bucket. It’s not the percentage, it’s making the commitment and being disciplined and automatic about the savings that makes this powerful. And if you do not save when you don’t have hardly any money to live on, you will not save ever. You will continue to believe you do not have enough to live on, no matter how much you make.

  8. Mr. Bach: I have followed your advice for years & even had my teenagers read “The Automatic Millionnaire”. I am your “typical” American family. Single parent, head of household, trying to be a self employed entrepreneur. I don’t do credit cards, live within my means, etc. My big question is, WHAT DO THOSE OF US WITH WILDLY FLUCTUATING INCOME DO? It’s extremely difficult to set things up automatically when our income goes up & down.

  9. Best to lower your bills, if possible, or find additional income until you can lower your bills. You would be amazed at how much you can save by planning menu’s, turning off lights, wearing sweaters instead of using heat, etc.

    For additional income, I used ebay to sell quite a bit of stuff that just sat around the house. I was surprised at how much it brought in. Even though I don’t have much debt now, I still use ebay and throw the money into my investments.

  10. Thank you so much. Your presentation was inspiring, I have been fascinated with it since reading The Automatic Millionaire.
    My question: how do you pay bills automatically if they fluctuate? Our electricity bill is different each month, the minimum due on credit cards alters slightly, etc….

    Best wishes, and God Bless YOU

  11. Hi David:

    I really like the video. I have Automatic Millionaire but will download Finish Rich. Thanks

  12. There is no doubt it can be done. Paying yourself first is hard to do when you have a lot of bills. You always seem to have more bills than money to pay them. It’s not easy to break the cycle but when you do it feels great.

  13. I love your short, concise information. It’s very helpful and works extraordinarily well. My only wish is I would have known about this when I was younger.

    Thank you for all your help and encouragement through your many books, videos and email updates.

    Audrey B

  14. I read The Automatic Millionaire a number of years ago. I followed this practice with my mortgage. Initially I was only able to add $25 to each payment. As time went by I noticed that I wasn’t impacted by that small increase in payments, so I was able to increase the automatic payments over the years as my income slowly rose. Every little bit counts. Start with saving what you have. I had also started a savings plan, $50/month, but unfortunately I stopped it when I went on maternity leave, thinking I needed the money more then, but would re-start once I was back at work. Well 3.5 years has gone by and I still haven’t restarted an automatic savings. Hmm, guess I know what I am going to do once I finish posting this comment : )

  15. Thanks for the update. I have not automated my minimum amounts to my credit cards, because I “pay them in full each month”! You are so right! I have missed a due date and had to pay a fee or request they forgive me this one time!!! I am going to set this up tonight when I get home!!

  16. I am so inspired – as a 24 year old woman working full time while paying for school, you have given me the hope that all this hard work is worth it, especially when there is something to look forward to at the end of it all: feeling RICH!

    Thank you David!

  17. I am a year and a half out of college, and my biggest concern is paying off my student loans. I have a home mortgage, typical bills, and a retirement fund set up, but what is more important when it comes to paying off student loans versus putting money in your retirement account and building up your emergency fund?

  18. I follow what David Bach says and have already paid off one credit card. We have almost everything automated and it really works. If you don’t, you’ll never get around to saving money and always be broke. We met him and his family in Bahamas and he’s really a great guy.

  19. I have most of David’s books and give them as gifts as well; thanks to David I have money in the bank I never had before. I have big bills too, but for some reason, although I “pay myself first,” then allocate enough for my bills, I don’t feel deprived or like I’m “missing” money. It’s a phenomenon I can’t explain, but it works! Thanks David!

  20. Hi David,

    I have a question and a comment.

    Question – you mention 10% as a reasonable amount to “pay yourself first.” Is that in addition to any defined contribution plan provided by my employer?

    Comment – We have automated only one payment: mortgage. This is our only fixed expense and I am comfortable ignoring it. I consider it important to monitor utility costs. Getting and paying a bill is the perfect way for me to keep up with this. My coworker set up automated payment on a telephone contract and learned that he had paid for unused services for over two years! That is exactly why I would never auto-pay a telephone service. I have been overcharged for natural gas due to meter-reading errors. Sure, it would probably be fixed next month, but in my case the outrageous charge would have caused NSF problems for other bills (we keep the checking balance as low as possible).

    I did enjoy the video.

    Pete

  21. Dana,

    For uneven income, you can add an income smoothing account where you store your income to draw against when you make less than normal. Deposit your income in the smoothing account when you receive it and then move one average months worth of expenses and savings needs into the checking and other accounts. The rest remains there until it is needed or the account is built up to about 3 to 6 months worth of bills depending on how much your income varies. Build up the smoothing account and emergency account to proper levels and then save the rest. Good Luck.

  22. David, I teach a Personal Financial Management class to high school students and I have been sharing your advice with them for years. I have a few copies of the Automatic Millionare that they can sign out and read. I think it’s great advice and very easy to follow. I’ll share this video with them also. Thanks for helping me teach young kids the importance of money management.

  23. Great advice as always. Think about adding another box for investments or starting a business. I think you called it, creating a second income stream. It has work well for me.
    Thank you for the financial freedom.

  24. I have been able to do this. If you read Bach’s books he has the plan that will show you have to get your credit cards and other debts down to where you can pay your bills. He has a latte factor that will show you where you will have extra money please read his books they are all afforable. I live on ss and can do it.

  25. Love this straightforward approach. QUESTION: What do you do if you are a freelancer and your income varies month to month? Would love to do this automatically but worried for down months

  26. When your income fluctuates wildly, use the lowest recent paycheck amount for your calculations. Especially if you are self employed, you will have bad months. Absolutely make sure that you can pay the bills + credit cards + emergency fund on that amount. Get rid of cable, switch to a prepaid cell plan, budget your food to take advantage of sale items and avoid impulse purchases. 5 years ago I read one of David’s books and realized that I had major changes to make, increased my income (although it’s still highly variable) and am much closer to my goals. 6-24 months emergency expenses is so important. Over half the people in this country could not make it a full month if they or their spouse lost their jobs. How terrifying to be in that position, one paycheck away from disaster.

  27. After watching that video on that helpful tip, I just wished while working still(I’m retired now)I wish I saw this video back then to start early on saving for retirement as well as managing my paycheck automatically through my credit union which it was deposited, it was so much easier that way to pay on-line for me and making sure mortgage was paid, utilities paid, credit cards paid, but now I’m retired his first 3 steps I have to fail because on a retirement contribution paid monthly with my finacial advisor doesn’t leave much money left over to pay myself, have a dream account least of all an emergency account. I would have to get one or 2 jobs to do that, leave retirement for someone else because now I can’t affort to retire. Is there a way I can get around that?

  28. Thank you David – as always – for a great reminder of your Automatic Millionaire System. I’m going to send my clients over to view it.

    Thank you Brad H. for a good idea on how to handle fluxuating monthly income.

    And a reminder everyone – even if you set up auto-payments, you still need to review each bill each month to be sure they are correct.

    Blessings and Possibilities,
    Maiya

  29. Thanks David! I send this not only to my sons and their wives, but also my nephews …this was a mistake my husband and I made in our working life..we are retired now. Unfortunately, when our careers started there were no 401Ks or IRAs …and pensions required 10 yr employment before being vested ….but we could have done savings anyhow and never thought of ‘paying ourselves first’!!

  30. Iwould only change one thing, I would put charity first or tithes as some folks call it then pay myself and continue with the rest of the list. If it wasnt for God you wouldnt be here to pay anybody.

  31. I think most of us can use the extra time we watch movies with or just fool around with, to get a hobby thats paying, us a little extra money . so that we can deposit enough to go automatic and build a life for ourselves. I work commission because several jobs I had downsized. It hasn’t been easy because my present market has gone soft, and Im re-inventing myself all over again.
    But I have several commissioned positions lined up again speculating on which one will offer the longest and most lucrative income. I m always looking for residual income as well. I would suggest to anyone out there working a job and not getting by, take matters into your own hands somewhat do a little something different, start a biz or take a another part-time job.
    And use the book, Ive got it and will begin to use it.

  32. Thank you David! I have been following your excellent financial advice for several years now. You have made a huge impact in my life. I am all the more financially sound because of having read nearly all of your insightful books and taking the necessary action!

  33. David,
    just saw your video and I love the idea of automating my financial life. It makes a lot of sense, can’t wait to get started!

    Thanks a bunch!

  34. Thank you David

    I’ve read a lot of the information on your website and found it very useful. My only concern about paying, or increasing payments into a retirement account is that in the event of financial collapse, devaluation of currencies and possible hyperinflation, this will be worth significantly less than the amount originally paid in. Individuals can take steps to manage their own budgets, but can governments be trusted to manage theirs?

  35. Hi David, thanks for taking the time to share your knowledge about saving/managing money with others! I appreciate you so very much! I watch you on the Today Show all the time – that is my favorite morning show. However, I have the same question and concern as many others who have watched this video. . .how do we do this if there just isn’t enough money to begin with?? It’s pretty much food, rent, and utilities – HELP! Unemployment and terrible decision-making out of desperation where our finances are concerned, have caused my husband and I to spiral into a deep black hole with no hope of ever escaping!! Can you please offer me any advice that will give me just a little glimmer of hope? Thanks, it would literally mean the world to me!

  36. I Am from Canada. I don’t know this would work for me. Before I even see my check the goverment takes its share first. How do i take out ten or even five percent before the government takes it share? where do I put it. I like your plan very well, please help me start something today, i don’t want to wait any longer. Thank you

  37. I am living proof that paying yourself first works. I began in 1982 with automatic savings thru my work @ AT&T. We were fortunate that we never had to use any of the money we saved and it grew & grew. In 1982 I had enough time & age to retire at age 55 and still haven’t touched that nest egg. My question is why isn’t our children being taught about financial planning in grade or high school? I had to show my son how to write a check, balance his checking account and of course save for his future. THIS KNOWLEDGE NEEDS TO BEGIN IN OUR SCHOOLS. If you want to leave a legacy behind please let it be that you somehow got your system, your knowledge into our education system. Our youth is our future and our youth need you.

  38. I agree with several of the steps here (pay yourself first, direct deposit, emergency fund). The following has also worked very well for us. I set up THREE separate checking accounts that my direct deposit goes to. The first for those monthly bills on “automatic”: mortgage, car payments, insurance… Things that are exactly the same every month. The second is for the bills that fluctuate, like utilities, fees for my sons’ lessons & activities, small donations, etc. 3rd is the “debit card” account. For the convenience at the pump or the grocery store, plus a little mad money.

    A few years ago we were trying to do ALL OF THIS from one account. It was too confusing to keep track of, and we got into SERIOUS trouble with our bank. Mainly a “cash flow” problem, but it turned into bounced checks and auto-payments that were returned. We lost thousands on fees that mounted up…. Really snowballed.

    Break these things up. You HAVE to be on time for the credit card, but in my opinion, it’s way better to be a couple of days late on the electric bill than to have massive overdraft fees stack up the day before payday, simply because of how things “fall” in the month.

    We’ve done this 3-account system for 18 months. WAY less stress!

  39. Great video. Will advise my sons to watch it. Too late for me though. Wished I had know all that you shown on the video when I was younger. Now too many bills later I’m strapped to the BILL MACHINE for life.

  40. Wow,
    My father (he lived to be 96) gave me similar advice all my life and he was a perfect example of what you teach.
    This was his financial advice:
    1. Save for the future.
    2. Pay extra each month on loans.
    3. Save for things that you need need i.e tires, repairs or things needing replacing.
    3. Pay your bills.
    4. If a little extra left. Thats play money. i.e. going camping.
    But if you have a lot left over start back at No. 1 – 3.
    He also gave us children another set of rules:
    If you borrow something- return it.
    If you break it, fix it. If not you replace with better than what you borrowed.
    If you say you are going to do something…unless your 6′ feet under, you do it.
    If you shake hands on a deal, it is better than any legal contract…it is your honor at stake.
    I spent time with him in his business and he always fixed things for people without charging if he knew they were poor.
    He would tell me to do good things for others but you don’t need a reward because your reward is the good feeling you have in your heart. There were so many people who told me what a wonderful, kind man he was but I knew that from watching him.
    Thanks for giving the same advice to others. The only thing I need to do is make more things automatic.

  41. This is great information, but what about when you are in deep debt and not making ends meet? Saving for retirement or dream funds doesn’t seem practical in my case.

  42. This video sounds great but it does not favor in you house bill (rent or mortgage). This accounts for a very large % of a NYers income. Where does that come in using your plan?

  43. I’m looking to see how can I pay my home off, which is the only debt I have? I have a 30year fix 5.625% but I’ve already paid 8yrs. I want to pay it off much sooner. I heard my home can be paid off in 7years. Is that possible?

  44. Its very sad to me that anyone, let alone so many people, don’t know all this intuitively. These things are the bare basics for the possibility of comfortable survival.

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