Do you have what it takes to be a millionaire?

I’ve been listening to David Bach’s “The Automatic Millionaire” audio book. At the beginning of the audio book, he wants you to find out if you have what it takes to be a millionaire. You can find out if you do by answering these questions:

1) Do you pay yourself first?

David Bach recommends that as soon as you get your paycheck, you should pay yourself first. Not the government, not the electric company, YOU. He also recommends that you pay yourself at least 10% of your income.

Personally, I think it’s important to pay yourself. After all, it doesn’t make sense to work really hard and have someone else take your money.You need to make it possible that YOU receive a percentage of your income. He recommends that you set it aside on your savings or retirement account.

However, it’s not as easy as David Bach portrays it. When PLDT sends you that notice of disconnection, you can’t exactly tell them “I’m sorry, I can’t pay you now because I had to pay myself first.” It’s very, very important to pay yourself, but make sure that you can survive with what’s left. I’ve had my own experiences where I had to pass up paying myself first to pay the “Big Guys” (PLDT, Meralco) and for other necessities (food, school supplies).

2) Do you have an emergency basket of cash?

I’ve talked about emergency funds in the past (specifically, in my pinoy money talk post). David Bach recommends that you have at least 6 month’s worth of living expenses stashed away in an emergency fund. Personally, I have 3-4 months worth of living expenses in mine. My goal is to have a year’s worth of expenses.

Why is an emergency fund important? To prevent you from digging yourself into a financial hole, should emergencies arise. If you want to learn about emergency funds, click here to read the post I wrote about it.

3) Do you know what your latte factor is?

Throughout his books, David Bach often talks about the “latte factor”. This is the small amount of money that we spend regularly for little things. An example – if you buy a latte every morning before going to work. Let’s say that latte costs P150. For an entire work week of 5 days, you spend P750 on that latte. After a month, you would’ve spent P3,000 on lattes alone. You need to figure out what unnecessary regular expense accumulates to a lot over time.

For me, my latte factor is fast food chains. That’s why I have a No Fast Food Goal for the entire month. For other people, it might be their cellphone credits, idle chatting on internet cafes, etc. Figure out what your latte factor is by writing down your daily expenses as you’re paying for them. that way, nothing slips by your radar.

There are 3 more questions you need to ask yourself if you want to know whether you have what it takes to be a millionaire. Click here for part 2 of this article.