Automatic Millionaire Book Review
The Automatic Millionaire Book Summary and Review
Bach, D. (2016). The Automatic Millionaire. New York: Crown Publisher.
In the first chapter, the author gives a story on how he met the first automatic millionaire, the McIntyres, who were able to save enough before their retirement. This was achieved through the idea of paying themselves first 10% of their monthly income and making a prepayment of their mortgage. Their secret was that they set up an automatic payment from their paychecks to retirement accounts (Bach, 2016).
According to Bach, paying yourself first will enable one to automatically become a millionaire before retiring. This idea means saving before spending, by setting an investment or retirement account, where you put a percentage of your payment, right before doing anything else with your payment. Bach insists that this practice should be automatic as the money will continue to grow in the background hence acquiring a future safe egg nest. Bach also touches on the power of compound interest and mentions that people who appreciate the power of compounding are the ones that end up rich.
However, the idea of paying oneself first before spending is challenging as most people’s monthly bills exceed their income per month. To address, the author uses ‘the latte factor,’ where he narrates a story of a twenty-three-year-old Kim, who argues that saving ten dollars each day is undoable for her. Bach tells her to record her daily expenses. The latte and muffin she orders add up to five dollars. She goes on to buy juice and PowerBar adding up to six dollars. This means that she spends eleven dollars mindlessly before lunch. David goes on to explain that, if Kim saved five dollars daily from these tiny expenses into her retirement account of 10% return, it would grow into 1.2M dollars by the time she hits 65 years of age. The point here is to cut off on some of these small daily expenditures and redirect these into things like paying your mortgage fee or saving for your retirement. Cutting off on minor and unnecessary daily spending, even if it is done partially, can eventually make one rich. This is the power of compounding.
The chapter Now Make it Automatic, talks about establishing an automatic subtraction from your payment to a different account, like your retirement account. Bach explains, more specifically, how one can automatically contribute towards their retirement. David uses the ‘pay yourself first’ concept to explain various financial ideas. He lays down a seven-step plan of how one can gradually make savings and eventually become a millionaire.
The main first takeaway from this text is to keep up with the latte factor. For example, making coffee at home instead of purchasing it cafes can contribute to one’s journey of becoming a millionaire. Avoiding unnecessary snacking and directing these few dollars into a savings account helps in accumulating wealth. The second thing that I would apply in my life is the idea of automation. This makes savings very doable, as one does not even realize it since you are planning based on the remainder of your paycheck after the necessary deduction. This helps in avoiding situations like paying off bills and remaining with nothing to save.
In my opinion, this book is one of the best guides if one is looking for ways of building financial success. The process is gradual and not difficult, as the book proves.