The automatic money system

At the foundation of any property investing is having good money habits. I have seen people who have tried to use property investing as a way of rectifying a poor financial position, unfortunately in most cases it ends up in disaster. It is very hard to build a solid financial position on a shaky foundation. The automatic money system was inspired by the book the – ‘Richest Man in Babylon’ by George S Clason. I also credit John Burley for this information that I am about to share.

What I love about the automated money system is that it sets you up to pay yourself first in the form of savings and then pay for everything else. Living within your means becomes easier as you have separated the important part of your income away from your spending.

The system is as follows;

Step one – Pay yourself first – 10% of your pay is calculated and set to come automatically out of your salary or everyday bank account into a separate savings or investment account. People who have adopted the automatic money system make paying themselves first, the most important priority. When you get paid every week, fortnight or month put 10% of your income aside. This is the money you will KEEP, Not Spend. Without too much effort you should be able to stop spending 100% of your income and set aside 1/10th for your future well-being.

Step two – Pay 10% as an additional amount towards eliminating any existing debt. I will cover this more in depth in future articles, suffice to say paying down debt faster than what your contractual loan repayment is, not only gets rid of the debt faster but can provide a buffer should a life event occur and can buy you time to get back on your feet.

Step three – Pay 10% to Charity – The question around charity invariably gets raised – the most common reaction when you mention paying 10% from your hard earned money to charity is – WHY? The reason for giving to charity is part of the responsibility and reciprocity associated with creating wealth and being a good steward of that wealth.

The benefits are that it simply gives you more wealth, not that you do it for that reason. You often here the phrase the more you give the more you receive and this is true in many cases. Furthermore, you may never know what indirect benefits giving to charity may provide you even without seeing the direct benefits for yourself.

If you look at many of the successful people and businesses today, just about all of them have a program that gives back to the community or a cause that is close to their heart.  I purchased a pair of Toms shoes recently, on the box they state their charitable giving program “one for one” for every pair of shoes sold a pair of shoes is donated to a child in need. Toms has donated over 50 million pairs of shoes. It made me feel good about buying the product. I think most consumers feel the same way, it is much nicer to deal with a business that demonstrates social responsibility than one that does not, and in turn impacts positively on their bottom line.

Step four – Spend the rest of the 70%. I think most of us can do this step without much encouragement at all.

From personal experience working with the automated money system I found it is easier to set it up with smaller percentages to start with just to get the habit underway. I have also worked with a number of clients with this system especially those trying to save for their first home and many of them start with a small amount such as $50 per week and gradually stretching the amount until the meet the desired level of 10% of their income.

I think now more than ever before there is a huge push for people to be more financially aware of what they spend. Being financially aware and financially responsible is the foundation that is mandatory to be a successful investor.

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