The Automatic Millionaire Strategy and YNAB

As many readers probably already know, we’re now a “working” family and no longer part of the student life that we grew to love over the past several years. I’ve recently written about the change to expenses that can happen with income rising even a little bit. In light of this phenomenon of expenses following income, it becomes extremely important to implement the “Automatic Millionaire” strategy made popular by David Bach.

I would like to get out in the open that Bach says budgeting isn’t necessary. While you can get by without a budget, you’re many, many times better off using one in conjunction with disciplined saving strategies. I think he does a disservice to people for not letting them know that they need a budget.

He is right on the money regarding the automatic millionaire principle. Just not budgeting. Ahh, that feels better already.

While I was in school, my main focus was to avoid debt at all costs. I didn’t want to graduate with a ball and chain. And I certainly didn’t want someone to have dibs on my money before me (Isn’t that what debt comes down to? Who gets first dibs?) I knew I would finish up my degree at 25 and 1/2 years old, and that I would have a job. (The nice thing about accounting is that you get a job when you graduate. That’s where the ‘nice’ part ends.) With that job would finally come the coveted salary.

Starting accountants don’t make a lot of money. That’s no secret. But fresh college graduates who have been miserly up to this point certainly can feel a bit of entitlement fever coming on. I’ve certainly felt it. The rationale is pretty easy: “I’ve scrimped and saved all of these years. I put myself through school. I worked the entire time. I never did anything fun. I’ve been depriving myself. I deserve [fill in want here].” Like I said before. I’m certainly guilty of it at times.

All throughout school I had read books on the side about personal finance. It’s certainly (obviously) a hobby of mine. Once this site started to pick up a little bit I naturally felt the desire and need to read more. One of the things I consistently read is that it’s better to start early with retirement investing. That’s a no-brainer. I won’t bother showing you the exponential trend line that can be yours if you begin investing at the age of seven…

But at any rate, the knowledge is there for me. I know it’s the early bird that gets the nest egg. Or however that goes.

However, with my anti-debt intensity throughout school, that was my real focus. I avoided debt 100% and snagged that degree. I really didn’t put anything away toward retirement during those college years. I just focused on avoiding that debt. I knew that 25 and 1/2 would still be early enough.

And then, we moved. To a nicer place. We now have another car. Our new social circle is used to doing things a bit more expensive than brownies and a game of cards. Other expenses have risen along with income. It’s a strange and very powerful phenomenon.

And frankly, it kind of scared me.

It scared me enough to realize that the first thing I needed to do was go to my trusty Vanguard and set up automatic deductions twice a month to fully fund the Roth IRAs. It also scared me enough to realize that I needed to make sure I was maxing out my 401(k) contribution up to the employer match (read: free money).

And now, I’m not so scared.

David Bach has this automatic millionaire bandwagon going at a pretty good clip and I’m going to jump on for the automatic ride to automatic millions.

It’s interesting to see how this panned out. For years I had been saying no to retirement savings (in a regular, big way) because I was so focused on staying out of debt during school (also a worthy goal). And then, when it came right down to the wire, where I actually had to start acting on my knowledge, it wasn’t quite as easy as I thought it would be. And I love this stuff!

YNAB fits into this equation quite easily. Each month as you sit down for your Budget Meeting, you’re going to want to make sure, first and foremost, you pay yourself. You budget that money away and never think about it again. It’s working toward your future!

I don’t believe a budget stops when you’re running your savings on autopilot though. Just because you’re obviously living within your means does not mean you aren’t missing out on opportunities to maximize your dollars by minimizing your expenses. A sound budget will help you prioritize your money to be in line with your values. So even when money is tight, you will be content because your money will be doing the things that are important to you — instead of doing things that society and advertisers tell you are important.

Bach had a great idea in writing the Automatic Millionaire. The idea to just set aside some money, out of sight out of mind, is a sound one. It will protect you from your knowledgeable self.