Stage 2: Build · Invest automatically
Invest Automatically
Investing automatically means money moves into your investments on a set schedule, before you have a chance to spend it. In Ramsey Solutions’ 2017–2018 survey, 8 in 10 millionaires invested through their company’s 401(k). Three in four credited regular, consistent investing over many years. Here’s what the research shows, what it can’t prove, and how to set the habit up this week.
What it means
Investing automatically is a decision you make once. You pick an amount and a date, usually payday, and after that the money moves without you. From then on, doing nothing is what keeps the habit going.
It sits in the Build stage. Starting opens a gap between what you earn and what you spend; investing automatically puts that gap to work, payday after payday, so it compounds instead of drifting away. A paid skill and a stake of your own widen the same gap.
Three terms help. A workplace retirement plan, such as a U.S. 401(k), takes money straight from your paycheck. An employer match is money your employer adds when you put money in. A default is what happens when you don’t choose, and it matters more than it sounds.
The evidence
Two kinds of research meet here. Surveys of millionaires show what they did, and studies of ordinary workers show how the habit sticks. You’ll find each study’s strength named below.
Survey of millionaires
Ramsey Solutions’ National Study of Millionaires
Eight in 10 millionaires invested in their company’s 401(k). Three in four also invested outside workplace plans. Three in four said regular, consistent investing over a long period explained their success. No millionaire in the study said single-stock investing was a big factor.
Read it as: what millionaires say they did.
Evidence strength: Low to moderate. It’s self-reported and taken at one point in time, and it was run partly through Ramsey’s own research panel, by a company that teaches money habits.
Field study of workers
What a default does
Before the change, employees had to sign up for the 401(k) themselves. After it, new hires were enrolled unless they opted out. Nothing else about the plan changed, yet participation was much higher under automatic enrollment. Many new hires also kept the contribution rate and fund the company had picked, though few earlier employees had chosen that same mix.
Read it as: the setup shapes whether people invest, not willpower alone.
Evidence strength: Strong for participation, though it covers one company.
Field study of workers
Save More Tomorrow
Employees agreed in advance to send part of each future raise to their retirement plan. At the first company, 78% of those offered the plan joined. Their average saving rate rose from 3.5% to 13.6% over 40 months, across four raises.
Read it as: a well-known way to raise the amount over time.
Evidence strength: Low for cause and effect. The U.S. Department of Labor’s review rates it that way, because workers chose whether to join.
What the research can’t prove
None of this shows that investing automatically makes anyone a millionaire. Surveys of millionaires only hear from people who got there. They can’t see the people who invested the same way and ended up with less. Returns vary. Markets fall. Results take decades, and you won’t see most of the growth early on.
Defaults cut both ways, too. The same pull that keeps people invested also keeps them at the first amount they set, even when it’s too low. In the enrollment study, many workers seemed to treat the company’s choice as advice.
Where the money goes matters as well. Keeping most of it in one company, especially the one you work for, is a serious risk. It’s worth remembering whenever you hear a single-stock success story.
What the research does support is simpler. When investing happens by default, more people take part, and many stay with it.
The rules that make it stick
Remove the choice. Every payday you decide again is a payday you can decide not to. So set the transfer once, for the day your pay arrives, and let it run.
Keep it out of reach. Money you can see is money you’ll be tempted to spend. Send it to an account you don’t use for daily spending, and don’t link it to a card.
Two more rules carry it through the long stretch. Give it years: time does more of the work than the amount does. And restart on payday: if you pause, start again on your next payday. You don’t need to catch up first.
The math
At an assumed average return of 7% a year, about $820 a month for 30 years grows to roughly $1 million. Over 40 years, about $380 a month gets you to the same place.
Smaller amounts follow the same pattern. At the same assumed return, $100 a month for 30 years comes to about $122,000. Keep it going 10 more years and it reaches about $262,000. That’s more than double, from only a third more money put in.
These figures are illustrations, not forecasts. They’re shown before inflation, taxes, and fees, and they don’t tell you what any market will do. Returns are never guaranteed.
See the full math, and the story of a secretary who held three shares for 75 years
How to start this week
This week: Before your next payday, set up one automatic transfer into a workplace retirement plan or an investment account. Even $50 counts. It’s done when it runs without you.
Later, two steps keep it growing. When you get a raise, send part of it to the transfer before you get used to the new amount. And once a year, check the amount you invest, not just the balance.
If your employer offers a match, it’s worth finding out what you’d need to put in to get it.
Not sure which habit to start with? Take the two-minute self-assessment.
Where to read next
Start here
How Much Do You Need to Invest a Month to Reach $1 Million?
Why time matters more than the monthly amount, with the math shown step by step.
Do You Need a High Income to Become a Millionaire?
What a survey of more than 10,000 U.S. millionaires found about pay, and what it means for every habit.
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The evidence in depth
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Sources
- Ramsey Solutions, The National Study of Millionaires. Fielded Nov 17, 2017 – Jan 31, 2018, with more than 10,000 U.S. millionaires, through a third-party panel and Ramsey’s own research panel. Self-reported. Evidence: low to moderate.
- Brigitte C. Madrian and Dennis F. Shea, “The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior,” Quarterly Journal of Economics 116, no. 4 (2001). Evidence: strong for participation; one company.
- Richard H. Thaler and Shlomo Benartzi, “Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving,” Journal of Political Economy 112, no. S1 (2004). Causal evidence rated low by the U.S. Department of Labor’s CLEAR review.
- Investment figures are illustrations at an assumed 7% average annual return with monthly contributions, before inflation, taxes, and fees. They aren’t forecasts.
For education only, not financial advice. Returns are never guaranteed.
