Book Review: The Automatic Millionaire

“The Automatic Millionaire” bestseller by author David Bach was quite an inspiration. Although it came out in 2004, I’ve recently found it hanging out in the library and I’ve finally gotten around to reading a personal finance book that actually provided sound money management principles.

David Bach writes with a convincing voice but it all came about through the story of the McIntyres. In fact, the financial advice in this whole book was drawn from the financial success of the McIntyre’s – but they sure revved up an internal flame to replicate their methods of handling money. If there was one thing I wanted to do after reading this book, it was to live like Jim and Sue McIntyre.

Here are a few highlights of the book:

- The Story of the McIntyres
By far, the story of this happy couple free of financial worries is one that surely invokes envy – and it is also the foundation for rest of “The Automatic Millionaire”. They represent the lives that the majority of Americans strive for:

• a solid nest egg
• substantial savings
• post-retirement income
• children they don’t need to support
• homes without a mortgage

- Pay Yourself First
The lack of willpower to save before spending is identified to be a core reason for the corresponding lack of financial success while using the popular expense tracking tool called a budget. The basic principle of Pay Yourself First is to save a small portion of your paycheck before you even see it. Whether it is in a savings account or retirement account, Bach tells us to put what we earn into ourselves and the future.

I have seen firsthand how an increase in income has also led to an increase in spending – I got the iPhone with my first paycheck after getting a job. If I had seen a smaller amount in my checking account after getting paid, I might have held off on picking up the latest gadget.

- Financial Automation
The perfect compliment to Pay Yourself First would be to automate it. First into your 401K, then your savings, and whatever you can into your IRA – all of which can be funded automatically. Set your bill payments to be paid automatically as well. By setting your savings priorities first automatically, anything you have left would be spendable to your discretion. With online banking and many financial institutions conducting their business through the Internet, automating your finances is psychologically beneficial and much more doable.

“The Latte Factor”
My non-existent relationship with coffee doesn’t rule out the fact that everyone has a blind weakness when it comes to spending. A$4 latter per day among many other little things that we buy over the course of the day can add up to huge amounts over the course of a year. My “Latte Factor” is actually small snacks like cookies and chips.

How dedicated can one be towards dealing with their “Latte Factor”? David Bach may help you identify the things in your life that is costing you a better financial future but I don’t think that telling someone to stop buying their cup of coffee is going to work. Quitting cold turkey is difficult but I do suggest reducing your consumption. Get a smaller size drink or a smaller bag of chips. Sure, it may not be “worth” it but I do believe cutting small expenses can lead to a big difference.

Overview
For anyone who is considered a blank slate for personal finance advice, “The Automatic Millionaire” is a great way to start. In about 5 hours time, it can certainly provide motivation to begin taking control of personal finances.

One thing I suggest is to not get too hung up on the numbers that David Bach uses. Don’t place too much emphasis on the different tax implications of a 401K, Roth IRA, and taxable investment account. Stick to the principles – even if you are already familiar with them. It is easy to be critical while scrutinizing every dollar amount that Bach uses as an example.

The second I finished the book, I was on my laptop logging into my various financial accounts and researching how I can automatically pay my student loans, credit card bills, and deposit funds in my Roth IRA. If these simple things were the effect of reading “The Automatic Millionaire”, then I’d say that it was worth reading!

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