Back in January, I discussed how integrating automatic processes into your life can maximize your efficiency in EVERY area, and I gave you a few examples–like automating your workouts and your marriage. But now let’s go into a little more detail about how to automate your financial life. This seems to be the area that causes doctors the most anxiety and confusion.

I’ll start with the financial example that everyone can readily relate to— Mortgage Debt. Most people have mortgage debt throughout their adult lives… However, many of them have never done the math that exposes how detrimental mortgage debt is when it comes to building wealth.

For instance, if you were to buy a house and take out a $500,000, 30-year mortgage, the monthly payment would be $2,387. The bank would have a highly automated plan and process for you that would be entirely in their favor: one that would have you paying them lots of interest, and very little principle.

In 30 years you would have paid the bank $356,000 in interest on a $500,000 loan, bringing the cost of the house to $856,000. And, when you add in the taxes you’d pay over 30 years, that $500,000 house becomes a $1.5 million house… and NOT due to appreciation!

Paying down your mortgage provides the ideal financial example of the power and benefit of automation. Don’t be a victim of automation under someone else’s control; turn the tables by automating the process in your favor.

Continuing the above example, you would tell the bank you want to pay $3,698 per month, instead of $2,387. You would have them set up the new payment amount so it would be automatic. You would have paid off that house in 15 years, and only paid $165,000 in interest. You would have “saved” (technically, avoided) $191,000 in interest payments! Take a minute and think about what you could do with an extra $191,000….

The critical concept here is to automate the process.

If you were to decide to just “manually” add to the regular payment each month, you wouldn’t keep it up. No one ever does. You would find all sorts of reasons that you couldn’t afford it most months (or find more enticing things to spend your money on), instead of remembering you can’t afford NOT to. By making your commitment automatic, you would be infinitely more likely to stick with it.

For most people, paying down debt is their only way of saving money, and yet they don’t realize that is what they would be doing … so they don’t do it. Making additional principal payments on a mortgage is an excellent financial strategy! Years ago you couldn’t automate the process so effectively and easily, but now there’s just no excuse.

Another great example of automating your finances is the example of your savings and compound interest.

One of the most common excuses we hear all the time is… “I don’t have time.” Most people think of time as their worst enemy, but it can ACTUALLY be your best friend.

Compound Interest is a perfect example of how time can be your best buddy. In layman’s terms, if you take a stack of money, add interest into the equation, and then add time… That money grows automatically! Compound interest is one of the greatest wealth-building tools there is. As great as real estate APPRECIATION can be, it’s not as great as the guaranteed benefit of compound interest over time.

The benefit of automation and time on savings—including that beautiful compound interest—is extraordinary! And yet, so few people have the discipline. The numbers speak for themselves:

  • If you put away $10,000 a month for ten years, you would have $1.6 million “in the bank” at the end of those ten years (or in investments, of course). So if you want to become a millionaire, all you need to do is save $10,000 a month for ten years!
  • If you put away $30,000 a month for ten years, you would have $4.8 million.
  • If you could manage to put away $75,000 a month for ten years, you would have $12 million!

If you are like most clients, you’ll say you don’t have a savings account, per se. But, you probably do use a tool like eTrade.com, or an online bank such as Ally or Barclays. And if you don’t, you should! Just Google “Best savings rate” to find a comprehensive listing of all the online banks. It takes about 10 minutes to open an account at one of these highly secure online banks. Once you do, you can transfer money between accounts in a matter of seconds.

Whatever you can afford to put away each month—maybe it’s $2,000 or $5,000 this year—run the numbers on the Savings Calculator. Make the commitment, then automate the transfer process ASAP. You’ll gain the confidence that comes with knowing exactly where you will be in 10 years.

Remember: the concept of automatic finances is SIMPLE. Remove your human deficiencies from the process and you will HUGELY increase your likelihood of success! Get started today by using the examples above to make changes, and become more intentional with your financial future!

 

Until next time,

jaysig

Jay Geier