The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich
Author: David Bach
Amazon Link: https://www.amazon.com/gp/product/0767923820
I was in a used book store today and saw the original version of this book and decided to pick it up. Here is my review.
Chapter One: Meeting the Automatic Millionaire
Chapter Two: The Latte Factor
Chapter Three: Learn to Pay Yourself First
Chapter Four: Now Make it Automatic
Chapter Five: Automate for a Rainy Day
Chapter Six: Automatic Debt-Free Home Ownership
Chapter Seven: The Automatic Debt-Free Lifestyle
Chapter Eight: Make a Difference with Automatic Tithing
Bach starts out with a story of a “tortoise couple” who did not make a lot of money but who was able to amass almost $2m in assets via consistent and automatic savings over a long time period. This is the classic get rich slowly story and is a good opening to prove that with a $50k income a comfortable retirement is still possible.
In the next chapter, Bach introduces the concept of the “latte factor”. A simple approach that shows how small changes in habits to spend less can have big impacts over long periods of time. While I have always thought that watching the small items is important, I think Bach misses a point in the opening of this concept. If you are not making good decisions on big purchases the latte is not going to make any difference! His use of the charts and the simple math are effective, but his 10% investment growth rates are a little ambitious. I also strongly disagree with his advice on not needing a budget. Every Fortune 500 company has a budget and so should you!
The next two chapters are the meat of the book and represent the two most important topics. In chapter 3, he introduces the concept of pay yourself first. I am a big believer in this, and his highlighting of the 401k to achieve paying yourself first is exactly the right approach! In chapter 4, he goes on to emphasize how important automation is which is also very effective. We have tools available today, via our paychecks, retirement plans, and bank accounts to make savings completely automatic. You still need to spend some effort in setup, but maintenance is very easy after that. You can’t spend money that you don’t see, so pay yourself first and then you can spend the rest. In the 2nd half of chapter 4 Bach starts down the path of “how to invest”. Since I am 100% VTSAX, I don’t agree with his recommendations as they are unnecessarily complex. He needs a simpler approach here.
In Chapter 5 on automatic savings and emergency funds he makes some good points but again it is just too complicated. The options he presents just are not necessary. This whole chapter could have been replaced with one sentence: setup an online savings account and have money automatically transferred each month to establish and maintain an emergency fund.
Chapter 6 on home ownership and the benefits starts out well but again he complicates things. The biweekly payment trick is good, but you don’t need to pay someone to do this for you! If you are paid every two weeks, there will be two months where you receive 3 paychecks. Simply make an extra principal payment of half your mortgage in those two months or better yet, just make a full extra payment in one of those months.
Chapter 7 on the debt free lifestyle is in the wrong order based on my Investment Walk. I understand that he wants you to pay yourself first but you can’t do that if you are saddled with debt. The spending needs to be cut, the debt needs to be attacked, and then you can start to invest. For those struggling with overspending and debt, I recommend the Dave Ramsey snowball approach.
Chapter 8 on tithing and giving is good in the sense that the same benefits one see from automatic savings and investing can also be applied to the giving side of the equation.
Overall I like the book and I think it is a good beginner personal finance book. I certainly did not agree with everything he says but he has some good foundation concepts that will serve people well. I think the key reason why this book has been so popular is it goes right after the Psychology of money and puts a system in place that enables people to be successful.
My Rating: 3.5 Stars