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Executive Review of The Automatic Millionaire

I received a free copy of David Bach’s The Automatic Millionaire [3] as part of a promotion from American Century (your fund fees at work) and this is a brief executive review of the book.

Executive Summary:
Automate the saving of retirement funds directly from your paycheck, monitor them periodically, and check back in thirty years to discover you’re a millionaire. Buy a home, don’t rent, and pay down half your monthly mortgage bill every two weeks to shave, on average, 7 years off your liability and tons of money.

Read on for a more in-depth review of the book.

David Bach’s book was a bit simplistic for me but it underscores a philosophy that I’ve practiced for the last two years, since starting a full time job and having access to a 401k. The crux of his book is to save the money before you see it and to automate that savings. What you automate, you can’t forget to do. What you don’t have, you can’t spend. He recommends saving 10% of your pre-tax salary (that is, pay yourself first). He is against budgets, because people never follow them. If you can’t see the money, you can’t spend it.

There are few other ideas he touches upon, like the idea of paying half your monthly mortgage bill every two weeks – effectively adding an extra payment a year. He details how you should go about discussing this with your lender because some lenders won’t know what to do with the extra money, they’ll put it in a non-interest bearing account! This part of the book is especially helpful.

Another idea he brings up is what he calls the Latte Factor, that is, all the little unnecessary expenses add up and eat away at your savings. Latte just refers to buying a coffee in the morning and shelling out a few bucks for it. I don’t think the idea is particularly new but for some it’s an eye opening analysis.

While he says his automatic plan can work for everyone, I’m skeptical about it’s effectiveness for folks like Morgan Spurlock emulated for thirty days [4]. If you can barely make payments on the essentials, you can’t make your money disappear and struggle even more.

The book is not terribly long, written in an easy to understand anecdotal format with lots of illustrative tables and diagrams. For the personal finance novice, it’s a good book to set the foundation for planning your retirement. For those who are more experienced, you may be able to digest the material standing in the bookstore.