Most of us know what we need to do to become rich: Spend less than we earn, save at least 20 percent, invest from a young age, save up for emergencies, and avoid high-interest debt.
But it’s one thing to know what to do — it’s another thing to actually do it. You know the old adage that you can lead a horse to water, but you can’t make him drink? Well, too many of us are thirsty, leading ourselves to water, and then refusing to drink.
So you might need to trick yourself into doing the right thing. If you find yourself off-kilter for your retirement goals, here are four ways you can trick yourself into becoming rich.
Automate Your Saving
Many of you might have read David Bach’s book, The Automatic Millionaire. The idea is easy: make everything automatic. That means your investments, your savings, your mortgage payments — even the tithes to your church or donations to your favorite charities — are fully automated. Now you have relieved yourself some stress, and you have eliminated the excuses that prevent you from growing rich. Set it up, forget it, and focus on earning more money.
The good news is that many workplaces make it easy to automate your retirement savings. If you work for someone else, you most likely have access to some sort of retirement plan, whether it’s a 401(k), a SIMPLE, or some other investment option. Rather than a fixed dollar amount, you should save a percentage of your pay, so that as your income grows, so does the amount that you contribute.
This is especially true if your employer offers matching, which is usually based on the percentage you save. And as your income increases and you’re able to afford to save more, increase the percentage that you contribute to your retirement plan. Even just a couple percentage points will make a big difference down the road.
Capitalize on Windfalls
Talk to people about influxes of money, and you will get the same response over and over: “That sure would be nice!” But the truth is that we have windfalls all the time, normally at least once per year.
Most personal finance advice will tell you to minimize the amount of taxes taken from your paycheck so that you don’t give the government an interest-free loan. We say that’s lame advice: Most people are actually more likely to make good use of a fat refund than they would a slightly fatter paycheck. So take a small amount from that refund and have some fun with it, then put the rest away in retirement accounts, money markets, and paying off debt.
Other windfalls you may be able to count on: Year-end bonuses, inheritances, and money from working a side hustle. Take advantage accordingly.
But most people interpret that wrong. There’s actually not meant to be a comma in there; “Stupid” doesn’t refer to the person, but rather describes the simplicity. (A more appropriate phrase would be “Keep It Stupidly Simple.”) The idea that the simplest method is the easiest to maintain and manage applies to just about every area of our lives, including our finances.
Suppose you start a new job where you get a 10 percent pay increase over your previous job. Spending that extra money on some luxuries is great — it’s fine to treat yourself, to some extent — but if you want to trick yourself into becoming rich, you have to pretend that an increase in pay never came. Keep life stupidly simple, without a new car payment or a bigger mortgage, and you will have the satisfaction of watching your net worth grow faster. And even if those significant pay increases don’t come with regularity, you can still be proactive about scaling down your lifestyle to live on less. Keep your lifestyle simple, and your account balance will grow.
Quit Blowing Your “Extra” Paychecks
When do you get paid? Some people get paid on the first and fifteenth of the month. Others are paid only on the first.
But many people get paid every two weeks. That’s roughly twice each month, but in reality there are 26 biweekly periods in a year. That means 2 months out of the year, you have an “extra” paycheck.
The problem arises in that people budget for 26 paychecks divided by 12 months. There’s a better way. Budget for 24 paychecks divided by 12 months, and now you have 2 “extra” paychecks that can help you increase your net worth.
If you have consumer debt, your first goal should be to wipe that out with these “extra” paychecks. If not, you can beef up your retirement savings, sock it away in an emergency fund, or pay down your mortgage. Budgeting without them is an easy way to never have to worry about them.