David Bach's The Automatic Millionaire

The Automatic Millionaire is a #1 bestseller, and a quick read by David Bach. It’s a good introduction to some solid financial principles. This is one of those books that I wish someone had given to me to read when I was, say, 18 or 19, or maybe even in my 20s, instead of reading it now in my 50s. On the positive side, I find that I’m doing almost all that Bach recommends. On the negative side, I lost out on the magic of compound interest by getting a late start. Nevertheless, here is my review of David Bach’s “The Automatic Millionaire”.

The Latte Factor

You may have heard this term, coined by Bach in this book. The basic principle is that we all have a “latte factor” or money that we fritter away. Bach’s recommendation is that this because the few dollars a day that is put into a retirement account for your future. With charts showing different dollar amounts, with different interest earnings, for different lengths of time are compelling. Again, great news if you are young. But, your retirement account will be pretty meager if you start in your 50s by saving a few dollars a day.

Pay Yourself First

Most of us have a bad habit of spending whatever comes in. If you wait until everything else is paid for before putting aside money for yourself, it’s unlikely that you ever will. As with any successful savings plan, Bach recommends you take the money for your retirement account out first – before you spend money on anything else.

Automation

This is another smart tip. If you automate the process, you will be less likely to stop saving, or skip a month because something else came up. Bach recommends that you take advantage of an automatic deposit program if your company offers one. Otherwise, he recommends you set up on automatic withdrawal with the retirement fund company or an automatic payment plan with your bank.

Save Up for a Rainy Day

This is often called an emergency fund. Again, Bach recommends automating this savings plan to build up a savings account equal to at least 3 to 6 months of your expenses… although he says that you should save more if that’s what it takes to make you feel comfortable.

Home Ownership

Everyone knows (or should know) that you want to buy instead of rent, and you want to own your home outright in less than the standard 30-year mortgage. In keeping with the “automatic” theme, Bach recommends arranging with your mortgage company to make payments every two weeks instead of monthly. In doing so, you will cut about 10 years off of your mortgage – and tens of thousands in interest payments.

Becoming Debt Free

If you are in debt, Bach recommends automating the payment process to get out of debt. The logic here is that if it’s automated, you won’t miss any payments which would result in late fees and possibly higher interest fees. He recommends only borrowing to buy something that will appreciate in value (like a home), and to pay cash for everything else. He recommends renegotiating your interest rates, consolidating your credit cards, and devoting ½ of your “pay yourself first” money to paying off your debts. I was surprised that he didn’t mention the debt snowball method here, as that seems to be the most effective way to eliminate debt in the shortest possible time.

Automatic Tithing

Because I’m a tither I was pleased to see that Bach devoted the last chapter of his book to the subject. Although I would have given it first billing, it’s good that he does weigh in on the subject.

I got a great deal on a used copy of this book at my local bookstore. I read it in two evenings (although it could easily be read in one sitting). I then passed it along to a twenties-something girl in the office. If these principles are followed starting at a young age, they will, no doubt, create an automatic millionaire.

So, what if you’re fifty-something and far behind where you should be to even think about retiring in the next two decades? David Bach has written a book for you too! It’s called “Start Late, Finish Rich”. I’m reading that one now. Maybe there’s still hope!

David Bach's The Automatic Millionaire