Automatic Millionaire: Financial Independence on Autopilot
The biggest obstacle we all must overcome to reach Financial Independence is ourselves. Budgets are like diets, they make all the sense in the world when you write them down and they only work for about a month. The simple truth is as humans living in a world of infinite consumption options. Add that to the nonstop blitz of advertisements our brain is subconsciously processing every time we turn on the TV, open our laptop or look at our phone, and it becomes clear why most people can’t stick to their budget (or their diet) for much more than a month.
That’s why today I am reviewing David Bach’s Book, The Automatic Millionaire, Expanded and Updated: A Powerful One-Step Plan to Live and Finish Rich. As an inspiring writer, first I have to tip my cap off to that title, that alone made me buy this book, and I am extremely glad I did because this book contains a lot of really practical advice that literally anyone can begin to implement and improve their personal financial situation.
I’m going to review the 3 major concepts I took away from this book and continue to implement into my financial journey.
- Pay yourself first
- The “latte factor”
- Put it on automatic
Pay Yourself First
This concept is pretty self-explanatory every time you have money coming in, you should dedicate a certain amount of that money to savings and investments before you can spend away that money. The math here is undeniable if you decided to “pay yourself first” and put away just $19 per day for 25 years and received a 9% rate of return on your investments, at the end of 25 years you would indeed, be a millionaire.
Depending on your financial situation, $19 per day might sound like quite a lot of money to put aside, this is where the next crucial concept comes into play.
The (Pumpkin Spice) Latte Factor
The Latte Factor, or if you like, the Pumpkin Spice Latte Factor, refers to all of the little indulgences and “minor” expenses that most of us probably aren’t even aware of in our day to day lives. No doubt, if we were to review the credit card statements of those who say they cannot find $19 per day to invest would have hundreds of dollars spent at coffee shops, eating out, cigarettes and tons of other frivolous expenses that
A. They probably don’t need and
B. They could certainly find a way to get it for free or much cheaper.
Why pay $5 for a fancy coffee at the hipster coffee shop downtown when you can brew perfectly delicious coffee at home for pennies on the dollar. The point of the “Latte Factor” is that we all have a lot more money we could be investing then we think we do. Bach goes into detail on a number of these items and illustrates what a difference in your retirement savings you would have if you invested $5 rather than spending it on a coffee.
Removing Human Error by Automating Your Savings
So now that you have decided it’s time to start paying yourself first, and you’ve committed to addressing your “Latte Factor”, it’s time to ensure your success by removing the weakest link in the chain, you. Even if you have seen the light and decide you are going to start saving and investing, as humans it’s only a matter of time before we start getting lazy and slipping back into our old habits. The sure-fire way to guarantee your financial success is to automate your savings and investing. As Bach details in the book, you can very easily set up an automated withdrawal from your checking account every month or every 2 weeks on pay-day and have that money placed into a savings or investment account.
If your savings are completely automated and are withdrawn on the same day your paycheck is deposited, you won’t even notice because you never had a chance to spend the money. Most of us are aware that tax is automatically deducted from each paycheck by our employer but we never really notice it, and most of us probably don’t even know how much tax is deducted from each check.
Automating the “pay yourself first” concept can apply not only to investment accounts but can also be used to accelerating debt repayments, paying off your mortgage years ahead of schedule and setting up an emergency fund to name a few. Bach details a number of ways you can apply automation into your financial plan to guarantee your success.
In summary, The Automatic Millionaire is a very easy read with simple and practical advice and I highly recommend it to anyone who is on the path to FI or wants to get their financial house in order. I highly recommend it to anyone who is struggling to meet their savings goals.
For an Extended Discussion on “Automatic Millionaire” Check out this Video
This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decision