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There are 3 fundamental money concepts most people still don’t grasp

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These concepts are Financial Literacy 101.

Finance is a complicated subject, and chances are you weren’t required to take an introductory financial literacy course in high school or college.

Perhaps you, like me, were left to school yourself on topics like investing, taxes, debt, and saving for retirement once you entered adulthood.

As commendable as that may be, bestselling author David Bach, who has spent 25 years in the wealth management industry and is releasing an updated version of his hit book “The Automatic Millionaire” this month, says there are three simple, basic money concepts that many of us are still missing.

No. 1: You need to ‘pay yourself first’

People still don’t grasp the fact that they need to save a dime out of every dollar,” Bach told Business Insider in a recent Facebook Live interview. He said that the average American who’s saving money is saving just 15 minutes a day of their income, when they should be saving an hour.

Bach noted troubling research from the Federal Reserve that revealed nearly half of Americans wouldn’t have enough money on hand to cover a $400 emergency. Yet, he continued, millions of those people will buy a coffee at Starbucks today and expect to buy the new $800 iPhone next year. Americans have money, he says, but we aren’t saving it.

“It’s an American crisis. That’s why I’m still doing this at 50, because there’s still so many people that aren’t getting it,” Bach said.

So get on the “pay-yourself-first plan,” as Bach calls it, and automatically save an hour a day of your income. “When that money is moved before you can touch it, that’s how real wealth is built,” Bach, who became a millionaire by age 30 by increasing his automated savings over several years, told Business Insider.

No. 2: You don’t ‘buy’ a retirement account

Bach says that many Americans are confused by IRAs and 401(k)s and believe that they “own” a retirement account.

In reality, he says, “the retirement account is just a bucket and their investment is put inside that bucket. It’s those investments that go inside that bucket that create the return.”

Indeed, when you sign up for an employer-sponsored 401(k) you are contributing a designated percentage of your pre-tax income to that “bucket.” As time passes, that money will compound and grow tax-free until you withdraw it upon retirement. In 2017, you can contribute up to $18,000 to your 401(k), or $24,000 if you’re over age 50.

If you open up an individual retirement account, like a traditional IRA or Roth IRA, you can contribute up to $5,500, or $6,500 if you’re over 50, to each account in 2017. The money in a traditional IRA will grow tax-free but is taxed upon retirement, whereas the money in a Roth IRA will be taxed before it goes into the account and is tax-free to withdraw upon retirement.

No. 3: The stock market isn’t predictable

Investing in the stock market is risky business, and it isn’t for everyone.

Still, Bach says he’s “constantly surprised” that people think they’re going to figure out the best time to buy and sell stocks by watching a TV show or reading an article. Unfortunately, the stock market is incredibly hard to predict, and trying to time it is often fruitless.

“You’d be better off with a boring, balanced approach that you invest systematically every two weeks and you leave it alone for your lifetime,” Bach said. “And that’s not sexy, and that may not sell, but that’s what works.”

Watch more from Business Insider’s interview with David Bach:

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