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The Automatic Millionaire
Oftentimes, advice around money gets complicated. There are so many different types of accounts to take advantage of, formulas to use, and quite frankly, a lot of noise. David Bach's The Automatic Millionaire is not a groundbreaking book with a brand new way of thinking about money but it does take away so much of the noise and gets down to practicalities. Although marketed as a simple 'one-step plan', Bach's ideas do extend beyond simply automating your savings. There are breakdowns of account types, investment advice, and even some formulas that you can use. The overall purpose of the book, though, is to encourage readers to automate their savings and truly take this seriously. Put the money away for future use and simply let it be.
Main Takeaways
Pay Yourself First and Automate Your Savings
Pay yourself first: what does what mean? Bach's argument is that as soon as you receive a paycheck, you should be putting some of that money away for yourself. Not in the "I'll buy something fun with this later" sort of saving, but emergency and retirement savings instead. By pulling money right out of your paycheck, there isn't any temptation to spend it elsewhere. Bach calls this working for yourself and by automating this process, you are able to pay your future self. There are various ways he suggests doing this - different retirement, investment, or high yield savings accounts that you could be using, but the takeaway is to do it. Take advantage of any work sponsored retirement accounts and then go from there. Once you have your savings being automatically pulled into an account that you don't touch, you are on your way to a more comfortable retirement.
Take Advantage of Compound Interest
Have your money make money. Compound interest is often the biggest factor in being able to save money over time. A large percentage of the population holds their emergency savings in an account that gains .01% in interest. This money is just sitting there when it could instead be passively earning you income. That means that you should start as soon as you can. The earlier you begin to save, the more you are able to take advantage of compound interest. Putting away even $20 a month will still leave you in a better spot at the end of the year if you put away nothing. Bach encourages you to slowly increase this amount as you can and it is often not as noticeable as you may think. Adding another $5 ever other month will increase your savings rate but will not have a huge effect on your monthly income.
Small Purchases Add Up
David Bach calls this "The Latte Factor". The savings strategy in this book breaks your automated savings down to what you are saving per day. So if you are hoping to save $300 a month, that comes down to saving $10 a day. In other words, the price of a latte. Bach makes the point if you buy a latte each day and then later when you stop at a gas station, you buy and drink and a snack that comes out to another $6, and then happen by a vending machine where you put a small treat for $2, all of a sudden you have spent close to $20 on non-essential food. When you are buying those items, you don't feel the impact because maybe you're telling yourself, "It's only a couple bucks". If you do that three times a week, that's close to $250 a month on purchases that you don't even remember.
At On Tap, we do advocate for having money set aside as 'fun money' to make sure that you do not burn out on savings and you do not get discouraged over time. This would be where your latte money comes from - maybe you can't purchase one every day but it is as important to enjoy your money now as it is to enjoy when you are older.
Want to figure out what your 'fun money' number is? Request a 1:1 financial consultation with an On Tap expert here.
Who We Suggest This Book For
Anyone looking to simplify their finances
There are a lot of financial advice out there and it can be overwhelming at times. How do you know what's right for you? Well, David Bach lays out a simple and effective plan that will improve your future. Not everyone will become a 'millionaire' by implementing these steps but they will certainly increase your likelihood of having a comfortable retirement and being more intentional with your money.
Anyone hoping to retire
This book is not for those who are looking to make a quick dollar for today. This is a long-term strategy that most people will not end up reaping the benefits of until they have retired as much of the advice is to take advantage of various retirement and long term investment accounts. This book's main focus is setting your future self up for success. This may make you think that if you didn't start investing when you are 25 then you are out of luck but that is absolutely not the case and no matter where you are in your journey, there is an opportunity to better your future.
Anyone who is ready to take action on their finances
Keep in mind while you are reading this book that the author takes a very simplified look at money. There is no doubt that his method works when applied correctly but it does not take the psychology of money into account, which plays a huge role for everyone, whether it is subconscious or on the surface. If you feel that you are ready to put a plan into effect, though, this book is perfect for you.
Author Information
David Bach is of one America’s most trusted financial experts and bestselling financial authors of our time. He has written twelve national bestselling books, including ten consecutive New York Times bestsellers, twelve Wall Street Journal bestsellers with over seven million books in print, translated into 19 languages.
Learn more about David Bach, here: https://davidbach.com/
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