The Automatic Millionaire is David Bach’s book to make average working citizens rich (by the time they retire).
The concepts are simple and rather beginner-level, but they are powerful and do work.
- Pay yourself first
- Make the payment automated
- Invest tax-free and the compound interest will make you rich
Pay Yourself First
The Automatic Millionaire dedicates a large portion of the book on the idea of paying yourself first. That means that as you receive your compensation you put away a chunk of it first thing.
Even before paying expenses, a chunk of your salary goes into your investment fund before you even look at your expenses.
The author recommends 1/8 of your daily income should go to yourself first. If you can’t manage that, raise your income or lower your expenses until you can.
As simple as it this concept can be, it works and it’s something that few people do.
Use Compound Interest
The math is that if you put away $300 a month to invest since you’re 25, it swells to 1.66 millions by your 65th birthday.
However, that doesn’t take into account a few factors, which I will dwell on the my Cons section.
Make it Automatic
I very much liked the idea of making the system automatic. It saves you time, you don’t feel like you are taking anything away from your current living standards and you don’t go about your life happy and jolly as if nothing was happening.
The Latte Factor
For some people, concedes the author, it’s difficult putting away any money from their paycheck.
Well, he says that there are many small daily expenditures we make which add up.
Like, for example, the famous $5+ Starbucks breakfast (Starbucks founder didn’t like that idea BTW :).
Real Life Applications
Cut unnecessary daily expenses
As a bit of a cheapo myself, I absolutely love this idea.
I can see the difference between my own family remembers -who don’t this- and myself. I save up so much faster than all of them!
Automation, automation, automation!
Automate everything you can. Save time and money.
Compound Interest Might Not Work!
The Automatic Millionaire rests on the compound interest concept.
I find it very simplistic though.
That concept makes you reach when you’re old… IF all turns out well.
- You keep working all years (no mini retirements, years without work)
- The stock market will keep going up (a HUGE assumption, read Fooled by Randomness)
- You will not touch, or don’t want to access that money
- You’re still alive and healthy by the time you retire
I personally prefer a different mindset than possibly staying at a job you don’t like just so you can hope the compound interest will work out for you.
Read the great The Millionaire Fastlane and The 4 Hour Workweek for alternatives.
I think the book could have been even briefer, but then again, I often think that (and that’s why probably I write so many summaries).
However Automatic Millionaire is not long and you can finish it in one sitting. I love that.
I listed a lot of cons there, and yet the main concepts from Automatic Millionaire are valid.
If you are a worker and you’re happy with your job, follow this path.
Automatic Millionaire, like other personal finance books, do not apply much to the way I want to live and lead my life.
But if you’re happy with your job and think you will keep working most of your life, then this is a great book to a wealthy and happy retirement.
And a stress-free life.
You can also check check Rich Dad Poor Dad and Think and Grow Rich.