Last week I revisited an older David Bach book, Smart Couples Finish Rich, and I mentioned that I had found a lot of his books to be essentially the same. I was distinctly reminded of that when I picked up “The Automatic Millionaire” from the library, and decided to read and review it for all of you.
If they’re all the same, why did I pick this one up? Well, it’s newly revised, expanded, and updated (according to the cover) and it promises a “powerful one-step plan to live and finish rich”. This particular book was a #1 New York Times, Businessweek, USA Today, and Wall Street Journal best seller, selling more than 1.5 million copies since it was written back in 2005. It’s been 12 years now since the original came out, so I thought that perhaps this version would be unique. Unfortunately, it’s not. But this is still an excellent book to pick up if (1) you’ve never read a David Bach book before; and (2) you’re new to personal finance, investing, and the power of compound interest.
The Power Of Automation
The book opens with the story of Jim and Sue McIntyre, a couple who just doesn’t “look rich”. Jim earns about $40k per year and his wife is a beautician. Bach can’t believe that this ordinary couple is ready to retire early. After all, he knows people who make much more money, live in big houses and drive fancy cars, and have nothing saved.
But this ordinary couple is more than ready to retire in their early 50’s. They have a net worth of around $2 million. David gets them to share more of their story, and the answer as to how they achieved this is shockingly simple. They took out 15 year mortgages, paying off their home early, then buying another home and renting out their first. They contributed automatically to pension plans, 401ks, mutual funds, their mortgage, and even their tithing. By completely automating their finances, this couple had started small but their savings and investments had grown over time to a huge amount. For a couple who earned $53 per year combined, $2 million was more than enough for them to be financially independent.
They called it “protecting yourself from yourself”, automating everything they could about their financial lives so that they would spend what was left after saving (rather than saving what was left after spending). This way the decisions were out of their hands, requiring no willpower, and their savings/investments grew while they were out living their lives.
Dr. Thomas Stanley in “The Millionaire Next Door” called this an artificial environment of economic scarcity. This is where, instead of living from a strict budget, you just save and invest automatically to hit your goals. Then you spend whatever remains however you want. Personally, I’ve found this method works really well once you’re on a good financial path. I’ve only done strict budgeting when I have a very aggressive short term savings goal and need to watch every penny. Otherwise, I determine what I want to save and invest, set that up to be automated, and then forget about it and go on with life. I’ve been known to call it the “Ron Popeil” method of personal finance – set it and forget it.
The Rest of The Book – Covers All The Basics
After introducing this powerful concept, Bach goes on to go through the usual basic financial advice, including:
- The Latte Factor (TM!) – The power of using small amounts of money over a long period of time to reach financial freedom. I used this same concept in my savings snowball idea
- Pay Yourself First – and make it automatic – Set up automatic withdrawals to save and invest. These sections also contain an overview of retirement account options
- Automate your rainy day savings – Use automatic withdrawls to build up an emergency fund
- Automatic debt-free homeownership – Set up your mortgage to be paid automatically, and automate any additional principal payments
- Automatic debt-free lifestyle – Don’t carry debt. If you have some, automate your payments to become debt free
- Automatic tithing – Set up your tithe or other charitable contribution to be automatic
There are a few powerful concepts in the book that might be of interest even to those that have been reading personal finance and investing books for a while (or have read Bach’s books before). So if you bump into this book in the library or the bookstore, try to find these two parts and read them over.
One short but powerful section is all about taking a hard look at exactly how much of your workday goes to you, versus how much goes to paying for everything else in your life. Out of an eight hour work day, how much time are you spending working for yourself? Is it an hour? Two hours? Twenty minutes? If you’re in a thirty percent tax bracket, about two and a half hours of your day is going to pay the government. If you’re willing to work 2.5 hours for Uncle Sam, why aren’t you working the same number of hours for yourself and your own future?
The other part of the book I liked was reading the new chapter on success stories in the back of the book. I always love to learn more about other peoples stories, which is why I really enjoy my Wednesday series on breadwinning, six figure, and/or millionaire moms. Even when we’re all in different places on our financial journey, I think that as a community sharing our stories makes us stronger. People are so reluctant to talk about money in “real life” that the virtual world – or books – is the only place we can discuss it freely. Seeing the stories of real people impacted by his books gives me hope that perhaps my writing will one day have that kind of impact on someone else.
What Else I Wish Were Here
Since this book was literally JUST revised and updated, and it’s all about automating your finances, I was hoping to see mention of some of the innovative new fintech concepts that are helping people to save and invest automatically. Bach does provide some online resources to do stock research, help with homeownership, the discount brokerage houses (TD Ameritrade, Schwab, Fidelity, Vanguard), and the full service brokers (Merrill Lynch, Lincoln Financial, Raymond James, etc.). He even makes brief mention of robo advisors, giving Betterment and Wealthfront a nod (note – not affiliate links, just links to their homepage). He also makes the depressing – but likely true – observation that most of the startups in this space aren’t going to last long. They’re either going to crash and burn, or get bought by a big company if they’re successful.
I wish he went into more detail about some of these startup options, and ways to automate your financial life. After all, there are startups like Acorns, Tip Yourself, and Digit that automate putting money away. Note – Digit recently made headlines by announcing they would start charging a monthly fee, so saver beware. These can be good options for people just starting out, as it makes saving rather painless and more fun.
Or what about Mint, Personal Capital, and YNAB (still not affiliate links) for either budgeting or tracking your spending? Even if you’ve made it automatic, tracking where your money went can be useful in seeing areas you can/should reduce your monthly outlay.
There are so many different ways to automate your finances now – I really wish Bach had focused more on them in this new edition.
What Do You Think?
Have you automated your finances? What automated options would you recommend to those interested in putting their financial life on autopilot? Let me know in the comments.
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