by Archie M. Richards, Jr., CFP^®
February 16, 2004

If a few decades remain before you retire, you can become a millionaire - automatically, with little effort.

So says David Bach, author of an easy-to-read book, "The Automatic Millionaire." His ideas make sense to me.

First, pay off your high-interest credit cards. That's like buying very high-interest bonds.

To stop financial bleeding, knock off those credit cards. Well, you might use one for convenience and pay it off monthly. But if you're a big-time shopper, look in the yellow pages for a credit and debt counseling service, cut up the credit cards into tiny pieces, and pay cash without fail.

Okay, let's get rich. Say you earn $16 an hour. That's $640 gross a week, $33,000 a year. You're living paycheck to paycheck, right?

Maybe you don't have to. Do you skip breakfast at home and spend $3 on coffee and a muffin in the morning? Are you a regular on bottled water? How about sodas on hot afternoons? You're already gorgeous; why go overboard at the tanning studio? Do you spend a couple of bucks a day on a lottery which your chance of winning is zilch? Cars can look great and run great even though they're used. With so many excise taxes added on of late, cigarettes cost an arm and a lung, Are you sure you can't quit? Lots of people have.

How about parting with just one hour of gross pay a day? That's $16. You won't know how much small stuff you can do without until you try.

All right, make it $10 a day. That's $217 a month, which you invest every month for 30 years. At 10 percent annual growth, you'll be worth $490,000.

In 40 years, make that $1,370,000.

Those are bigger numbers than you expected, right?

Forget budgets. They're supposed to control normal human impulses. Fat chance. Budgets don't work, because they're no fun.

Here's how you can get rich automatically: Set aside money off the top of your pay. You gross $640 a week. That's $1,280 every two-week pay period. You're investing $10 every working day - $100 every pay period. Therefore, ask your employer to set aside 7.8 percent of your pay ($100 divided by $1,280). It's called "automatic direct deposit." Specify a percentage, not a dollar amount. As your pay rises, the amount automatically goes up. Later on, when you're wealthier, raise the percentage.

If your employer offers matching, take advantage. It's like finding nuggets of gold. With a 50-percent match, the contributions to your plan would total $325 a month, instead of $217. In 40 years, you'll have over $2 million. Bingo!

If your company has no retirement plan, use a traditional IRA. But be sure to make the contributions automatic. The mutual fund or brokerage firm dips into your bank account each month and withdraws the amount you specify.

The amounts invested are deductible from your income taxes. You're paying yourself before you pay the government. Tell the employer to reduce your tax withdrawals. This eases the burden.

Use index mutual funds. At first, buy just one broad-based U.S. stock fund. After a while, spread out to foreign stocks and small proportions of bonds and real estate investment trusts. Limit investments in your company's stock to 10 percent.

Adjust the investments every few years, if you need to. Generally, the more boring your investments, the better the results. Get your kicks from putting as much money as possible into the pot. Never mind the pot itself. Let it boil without watching it.

Here's a neat trick for your home mortgage. Let's say your monthly payment come to $1,000 a month. Pay $500 every two weeks, automatically. You'll own the house free and clear many years sooner. To handle the payments, search in your browser for "Paymap, Inc." and call the number provided in contact information.

Money you don't see you don't spend. Slice a percentage off the top of your pay. Automate the contributions. They'll make you rich.