Automating Your Way to Financial Independence

Who Wants to Be a Millionaire?

There’s a reason why this show has been airing consistently for almost 20 years now.

Most people would, if given a chance.  But for most people, it’s a “dream” and not a feasible reality.

Let’s get real; how many of you, without winning the lottery or finding a long lost relative that leaves you a $50 million dollar estate (Hi, Aunt Margie, remember me?), can realistically imagine yourself having an asset of $1 million dollars in the next few decades?

Seems like a dream to most, and reality only for those making six figures or have rich parents, or hit the jackpot either in Bitcoins, entrepreneurship, or the lottery.

Some personal finance authors think otherwise.  In this post, I want to share with you what I learned in the past year going through numerous personal finance books, blogs, videos, and articles.

What’s Financial Independence?

Wikipedia defines Financial Independence as follows:

Financial independence is a state in which an individual or household has sufficient wealth to live on without having to depend on income from some form of employment. Financially independent people have assets that generate income that is at least equal to their expenses.

Basically, it’s a state of being where you never have to work for money if you didn’t want to, and still be able to live in relative comfort for the rest of your life.

Pay Yourself First

According to David Bach, author of The Automatic Millionaire, the key to becoming a millionaire is to “Pay Yourself First.”  And he believes just about anyone can do it.

The concept of Paying Myself First wasn’t a new one for me.  It had appeared in Rich Dad Poor Dad: What The Rich Teach Their Kids About Money – That The Poor And Middle Class Do Not!, one of the most read personal finance books in America.

Basically, the premise is this: Before you pay anyone else, including the government, your bills, and your debt, you Pay Yourself First.  Paying yourself first contributes heavily into financial independence in the future.

As a law-abiding citizen of New York City with no criminal record on file (and not a single traffic violation), the concept of “pay yourself before any bills!” seemed a little sketchy to me, and I couldn’t wrap my head around what it meant.

In Rich Dad Poor Dad, Robert Kiyosaki shares these diagrams to “show” what he means by Paying Ourselves First.

(He shares the diagrams in his blog post, The Power of Self Discipline Leads to Cash Flow, where I’ve borrowed them from.)

Pay Everyone Else First Model

This is how most of our financial situations are set up.

We get whatever salary or income we get, and then it goes to paying our monthly expenses, whether it be our credit card debt, rent, car insurance, or food.

It’s a rat race, and chances are, every month, there’s some reason or another why you can’t put any money into your “Assets” category (ie: into savings or investments).

You might be living almost paycheck to paycheck, or have limited funds available for emergencies, or routinely have to dip into savings to pay your bills.

You might be thinking to yourself:

  • “I pay my bills every month on time. I pay my rent. I don’t overspend. I don’t rack up credit card debt. Why is it that I don’t feel like I’m ever getting ahead?” or
  • “Every month, I pay my expenses, and there’s nothing left over. There’s no way I can save any money when I’m barely making it with what I have right now to pay my bills!”

A good question to ask yourself is, “If I had a $400 emergency right now, will I be able to pay for it?”

If you said no, you’re in good (?) company: 47% of Americans also responded that no, they will not be able to, unless they borrowed money or sold things.

But good news: it doesn’t require reaching financial independence to be prepared for an emergency!

Pay Yourself First Model

This is what your financial situation may look like when you Pay Yourself First.  When it’s pay day, instead of paying your bills first, you pay yourself first.

What does that mean? It means that before your landlord, your gas company, your credit card company, and sometimes even before the government gets to your hard-earned paycheck, you make sure a good portion goes to you.

Because you “pay yourself” before anyone else, you will always have made that initial saving account deposit before you even have a chance to spend it.

Basically, to “Pay Yourself First” means that our investment account or your savings account automatically get funds transferred into them before you (and others) have chance to grab at the cash.

In this way, all your bills get paid last, but you get paid first, and you begin to accumulate assets because the transfer happens without question every month.

(But yes, you do still have to pay your bills….)

So How Do I “Pay Myself First”?

Paying yourself first means that you are investing for yourself and your future FIRST before the bills.  This is one of the most important ways you will get closer to attaining financial independence.

You are looking out for yourself, your future family (if you choose to have one), and hopefully eventual retirement by contributing some funds now.

So how exactly do you pay yourself first? This is where the The Automatic Millionaire comes into play.

He goes over a few steps and options, but here are my major take-aways:

Pay Yourself Before Even the Government!

There are many ways that you can pay yourself before taxes get to you.  In my case, taxes take up about 30% of my salary.  It’s painful, but it’s a fact.

There are ways to maximize what you keep and minimize your taxes… Without having to have a baby (hah!).

Tax Sheltered Retirement Funds

You’ve probably heard of things like Traditional 401K (company sponsored) and Traditional IRA (individual).  Maximize these if you can!

Having these accounts and contributing to them will not only allow you to start saving for retirement, but also cause your “taxable income” to go down.  What this means is that you may be eligible for paying less taxes, because the government “thinks” you make less than what your actual income is.

If your company offers a 401k, and they offer a match (they will “match” up to a % of your salary), definitely take advantage of them.  It’s not often you come across FREE MONEY!!

If your company doesn’t offer a 401k, or you are self employed, you can open a Traditional IRA, which can also be taken out pre-tax, though there may be a bit more set-up required.

For self-employed folks, there seem to be a few other options available, so definitely do a bit of research! The government loves entrepreneurs and give tax breaks for retirement accounts!  I would definitely check out The Automatic Millionaire in your case, as he goes over many of these concepts.

Tax-Sheltered Medical Fund

Another way to pay yourself before the government is to open a Health Savings Account (HSA) or Flexible Spending Account (FSA) for your medical costs.  Your eligibility may depend on the type of insurance you have and your employer.

Basically, money is taken directly from your paycheck, pretax, to go into a “bank account” for your medical costs.  They often provide you with a debit card to use, though sometimes you have to do the reimbursement process (especially if your doctor’s office is old-school like some of mine, and only take checks).

This also lowers your “taxable income,” so not only do you get “more bang for buck” by being able to keep $100 to spend on medical costs pre tax (as opposed to say, 70%, if your tax rate is 30%), your taxes may also go down.

Reading the guidelines posted on sites like, one will learn that; there are many rules and maximum contribution amounts, and FSAs expire at the end of the year (HSAs roll over annually), but if you are employed by a company that offer full benefits, I would inquire! Some employers even contribute certain amounts to HSAs like they do with 401k matchings, which is another pot of FREE MONEY you should definitely take advantage of! (I believe my employer contributes $500/yr to our HSA accounts.)

If you are self-employed, there are probably ways for you to contribute to pre-tax medical accounts too!

Automate, Automate, Automate!

Don’t leave anything up to “You.”

“You” will always find an excuse, month after month. You’ve overspent, had a holiday, had an emergency, there’s no way… Month after month, you’ll end up having a reason why you can’t put in that 100% you promised yourself.

Instead, set up an automatic transfer every month after your first paycheck (preferably not the one near your major bills).

I have set up an automatic transfer to my savings account and my Roth IRA (until I max out the $5500 for this year) a few days after my 1st paycheck of the month, which is the 15th.  My whole paycheck goes into savings or investments, so I never really “see” it in my checking account.  This makes sure that I can’t “accidentally spend” it because I don’t have the illusion of having had that money.

I’ve found this to be much more sustainable and less stressful than when I attempted to budget and live on cash, as I tried with the #1PaycheckChallenge back in August.

Why? Simply because I’ve automated it, and I didn’t have to worry about having enough money, because I knew I’ve already “done my saving” for the month.  So whatever I did spend, it would be coming out of the pot of money I had set aside as spending money.

I chose this paycheck, because the 2nd paycheck, which happens on the last day of the month, is where my credit card and my rent is paid through. I need to make sure that my bank account has stabilized enough for me to pay $2000+ in span of a few days right after my paycheck is deposited, just in case my roommate doesn’t pay me for next month’s rent before the checks are cashed in.

The point of automation isn’t to cause chaos and overdrafts. It’s to train your mind into thinking that you never had that money in the first place so that it can recalibrate to spending only what you have left AFTER you’ve “paid yourself.”

Also, while you are at it, make sure your bills are automated too so you never forget to pay and get that pesky late fee! But make sure you keep track of when things are paid out on which day of the month so you can always make sure to have enough funds to cover them.

1 Hour Per Day

So, how much “should” you be saving?  According to David, you should Pay Yourself at least 1 hour of a day of your income.

What does this mean? This means you put in around 12.5% of your salary into yourself and your future before anyone else can get to it.

Save or invest 12.5% of your salary.  That’s it.

Of course, you can always work up to that 12.5%, as going from 0 to 12.5% is a huge leap.  Maybe start at 5%, and increase 1% every year.

And everything else… Goes to other people and companies.  That’s kind of depressing when you think about it…

But I Really Don’t Have Anything I can Cut!

What do you say to people who say they don’t have enough money to save?

People say, if I make more money, then I’ll save. Or they say, I can’t afford to save. [But] it’s about saying, over and over again: You can’t afford not to.

You don’t go from not running to running a marathon. You work your way up. Savings is very similar. You probably do have enough money. You just have a Latte Factor. It’s not really about giving up coffees or something [else], but looking at where your money is going and realizing, I may actually have enough to save.

There’s an enormous disconnect between people’s values and how they spend their money. It’s about getting total clarity around your values and making sure the way you spend and invest aligns with that.

How David Bach Became a Millionaire (and the Rest of Us Can Too)

For those of you who have no idea where you could possibly cut… I recommend taking a look at the Latte Factor Calculator.

Even if you don’t find anything you can cut out, you may be able to better visualize where all of your hard-earned money is going.

Play around with $$ values! You find out how small changes may impact you greatly in the long-run… Especially when we consider compound interests from high-interest savings accounts or investment accounts!

Latte Factor

How much do you need to save every day in order to become a millionaire by 65…?

You might be surprised to find the results!

In my case… It really does seem to be price of a daily Starbucks Latte!

(Table from How Much Money Do You Need To Save Each Day to Become a Millionaire by Age 65?)

Get Creative!

To successfully pay yourself first, keep the following in mind:

  • Don’t get into large debt positions that you personally have to pay for. Keep your expenses low. Build up assets first. Then buy the big house or nice car. Being stuck in the Rat Race is not intelligent.
  • When you come up short, let the pressure build and don’t dip into your savings or investments. Use the pressure to inspire your financial genius to come up with new ways of making more money and then pay your bills. You will have increased your financial intelligence and ability to make more money.

The Power of Self-Discipline Leads to Cash Flow

When my roommate told me that he was going to move out, and I decided to live alone for the time being, it didn’t take long for me to realize that 70% of my take home was going to be taken up by my rent, utilities, and wifi.  Despite that, I didn’t want to stop saving money or contributing to my investment accounts.  So I set a financial goal for myself that was a little more aligned with the new financial situation, and set my “reach goal” to be a little higher so that I had to get creative with where I got some extra cash.

Just in this month, I’ve made $210 from babysitting and dogsitting. It isn’t much, but it’s still a good sum from a few hours’ worth of work!  And I’ve dumped it all immediately into my savings account.

If I had to, I can start tutoring again for ~$50/hr, or find some other freelance work to do.  Looking for ways to make money definitely opened up a lot of possibilities in my mind for things I could do with the skills I currently possess.

When Do I Pay My Bills?

As I mentioned above, I “spend” most of my 1st paycheck of the month to “Pay myself first.”  Many people can’t do that, whether it be due to cost of living, debt, or health conditions.

I have most of my bills set up to be taken out of my bank accounts or via credit card at the end of the month so that it doesn’t happen at the same time as the massive take-out is happening place.

My utilities are taken directly out of my checking account, and my wifi fee is taken out of one of my credit cards, so I pay it when I pay my credit cards off every month.

I only spend amount I know I can cover either with this credit card payment cycle or the next (if I wanted to focus on the investment/saving), but I never pay the “minimum balance,” as that incurs fees.  If it’s a large purchase or payment, I would try to see if I can start saving up for it beforehand so I am not caught in surprise.

What Do You Use?

This isn’t a sponsored post.  Just what I use for my saving/budgeting/investments.

  • Mint – Android/iPhone App with full web interface; best budgeting app I’ve found yet, which integrates with majority of my accounts and allows me to budget and set saving goals.
  • Vanguard – I use Vanguard for my Roth IRA account because they are known to have one of the lowest fees.
  • Schwab Intelligent Portfolios – RoboAdvisor I use (no fee) for my investment portfolio.
  • Robinhood – My single stock trading app (no fee). (Ok; this one’s a referral link because apparently we can both get a stock if you sign up thru the link; but I’ve had an account here for a year now.)

Through my company, I have a Roth 401k account and an HSA account (which are taken out of my paycheck before I get my automatic deposit).

Can Everyone Become a Millionaire?

Of course, not everyone can do what these people suggest. And even if we DID do everything they tell us to do, the market is unpredictable, and there’s no way to predict the future.

And the Repeating Cycle of Poverty is real.  Sometimes, the only thing you can do is to pay whatever you possibly can down on a debt.

However, I think there is much to be gained by even just “knowing” about the way those who have achieved their millionaire status have gotten there, especially from modest means (by modest means, I mean the definition of “Middle Class” as we USED to know it; not what it means now… which ls less than stable).

Through my research, I don’t expect to be a millionaire.  But I do expect myself to be at somewhere better than I otherwise would have in 10, 20, 30 years… And into retirement.  Maybe at some point, I’ll reach financial independence.

And having more resources, even if it’s only a modest sum, is definitely worth a few minutes of attention.

I hope you learned something on this post, and I’d love to hear what you think, or if you have any other resources you love or books you’ve benefitted from!

Resources/Articles Mentioned in This Post



Hiroko Nishimura
AWS Community Hero. Special Education teacher turned IT Engineer turned Technical Writer. Author "AWS for Non-Engineers" (Manning Publications). Technical Instructor "Introduction to AWS for Non-Engineers" (LinkedIn Learning).

30 thoughts on “Automating Your Way to Financial Independence”

  1. The latte factor really hit home for me. A lot of times, my friends will say that don’t have any money left over at the end of the month. But they have money for Starbucks. This is a great article.

    1. I encounter that a lot too. There’s always money for that drink, dinner out, Sbux, or make up, but never for saving. It’s all in the mindset! 🙂

  2. Very well presented best I’ve heard so far.I do have a question though at the end when u were talking about the HSA question. so even with part A you cannot contribute to an HSA? My husband is turning 65 June 1st so we should stop the HSA now?

  3. Incredible post and very helpful!I have heard great things for the books you mentioned as well, hope some day I will finally read them.I am pretty consistent with my savings (my goal is to finish my house so that I can move in with my boyfriend eventually) but in my country, banking and investment portfolios are not to be trusted.

    1. It sucks when banking and investments can’t be trusted! I think similar things can be said for here… (the tank around 2008 killed a lot of people’s whole life savings), but without it… We definitely won’t be able to retire, so it’s a hard place! All in all though, I feel like the mentality of being able to live within your means is more important than how or how much you save!

    1. Can be a reality!! 🙂 (Well, not sure of the “millionaire” part, but at least having a bit more padding in finances!)

  4. This has so much good information!
    Thanks for sharing this! I think it is so important for people to be aware of their personal finances and this post has a ton of great material!


    One of my main goals this year is managing my finances better because it is admittedly where I lack so much control (I mean, you’ve seen my Gymshark collection, right? xD) For my project of managing my finances better (especially with my added income of freelance stuff) I’ve actually had a good read of your older stuff on money which I have implemented like no spend days!

    Thanks so much Hiro! I’m definitely going to implement some of the tips you mentioned here. 😀

    1. Yess!! When you start getting that extra money is a really great time to start implementing changes, since it wasn’t money you had before, so you won’t “miss” it! 🙂 Since this year started, I’ve been doing freelance things here and there, making a $50 here, $50 there, a couple hundred a month. And I’ve been immediately transferring whatever I get, even if it’s in cash, into my Savings account so that everything extra remains extra. It’s harder to really keep track of what I’m spending when I have the extra money AND I don’t account for it… It’s good practice for when you start getting full time wages too, because you know exactly how much you need every month to survive! 🙂

  6. This was actually pretty interesting! (I was a bit wary, heh.) I am currently unable to partake in such a thing (no regular income), but one of the things I’ve definitely been interested in for a long while was a medical savings account. I’m never prepared, it seems, even if I am working—and then I find myself wishing I had a savings account, because even when I was working, I could hardly afford to take sick days. I’m accident prone, and my allergies make me susceptible to trending illness. It’s a pain, but it’d be nice to be financially prepared for such ish for once.

    1. It’s definitely a lot harder to implement anything without a stable income! But it looks possible to set up an HSA without an employer with pre-tax dollars (though I’m not sure how you’d go about it without a regular income/paycheck for them to siphon off…). If you DO get a paycheck, I think you can sign up with an HSA account in a lot of banks (ie: Bank of America, for example, if you have one: or HSA specific banks like HSA Bank (, and they can start helping you save money.
      Though the caveat is that you need to have the High Deductible Plan, which is cheaper to have, but more expensive to get sick with… $$$$$ :/ Waiting for that “medical system reform” but haven’t seen it yet!

  7. Such an interesting an informative post! It gave me a lot to think about, that’s for sure! Thank you for writing this! I’ll definitely be referring to it a lot in the future!

  8. Awesome advice, especially the ROTH IRA! Even with students loans, I had to make sure I had my ROTH set up since I work as a designer for a small company that doesn’t offer any long-term saving options.

    1. Yes!! The IRAs are so important when your company doesn’t do a 401K! Compound interest really helps, and earlier you start one the better! Good luck!! 😀

  9. Very thorough and educational post! I love how you explain many different aspects of paying yourself first, such as with various investment/retirement accounts. I think the problem with this model is that many people do not have money to spare, so paying themselves first would mean not paying some bills, or possibly going without some basic needs. One of our goals is to try and get ahead of the debt cycle by teaching people how NOT to accrue major debt, which would make paying yourself first easier.

    1. Thank you!! And yes, definitely. You can’t “pay yourself first” if you barely have any money to even pay the bills, period. These tips are for people who SHOULD have enough money to be saving or not having to dip into savings/go into credit card debt, but somehow, at the end of the month, never seems to have enough left. But hopefully, everyone, regardless of their current financial situation, can learn something 🙂

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