Most millennials, 62%, say they're living paycheck to paycheck and only 38% feel financially stable. The good news is, three simple steps can help young people build wealth, says self-made millionaire David Bach, who is also the co-founder of AE Wealth Management and a New York Times best-selling author.
While anyone can benefit from these action steps, they can be particularly powerful for millennials who, as young investors, have time on their side. These tips can "change your whole life when it comes to your money," Bach tells CNBC Make It.
"The single most important decision you're going to make in your 20s is to pay yourself first," says Bach. "That means, when you earn a paycheck, the first person who gets paid is you."
Most people don't do this, he writes in "The Automatic Millionaire." "What most people do when they earn a dollar is pay everyone else first. They pay the landlord, the credit card company, the telephone company, the government." Then they end up with whatever is left over. That system is "positively financially backwards," he says.
How much should you aim to set aside? Rather than thinking about that figure as a percentage of income, Bach likes to think about it in terms of hours of your life: Aim to keep "one hour a day of your income," he says. Say you earn $50,000 a year. That's about $1,000 a week, or $25 an hour for a 40-hour week, so you should try to save $25 a day.
If you'd rather think about savings as a percentage, one hour's worth of income comes out to roughly 10% of your gross income, Bach says.
The key to paying yourself first is to make it automatic, says Bach. That means, have money taken out of your paycheck and sent straight to your savings, retirement or investment account so you won't even have the option of spending it.
When you don't see the money, you'll learn to live without it.
To be clear, simply saving a lot of money doesn't make you rich. "You have to have this money invested for growth," Bach says. "You cannot put this money in a money market or a CD, where it grows at 1% or 2%. You'll never build wealth" that way.
Bach recommends putting your money to work in a tax-advantaged retirement account, such as a 401(k), Roth IRA or traditional IRA, where it will grow over time.
Retirement-specific accounts offer tax benefits, but there are other ways to invest your money: You can look into low-cost index funds, which Warren Buffett recommends, and online investment platforms, such as Ellevest or Betterment, known as robo-advisors.
No matter how you choose to invest, the most important step is to open at least one account and start contributing to it consistently. The earlier you start, the better, thanks to the power of compound interest, which can cause your wealth to snowball over time.
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