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The Automatic Millionaire

Author: David Bach Reviewer: Barbara O’Neill,


Publisher: Broadway Books, New York Rutgers University
2004, 255 pages, ISBN # 0-7679-1410-4

Are your clients having difficulty finding money to either an individual retirement account (IRA), or
repay debts or invest for their future? If so, they might taxable accounts, or both.
want to consider some of the ideas described by
financial author, David Bach, in his latest book, The Chapter Five suggests automating an emergency fund
Automatic Millionaire. The basic premise of the book of at least 3 months expenses. Because cash assets
is that you only need to take action- once- to automate have low rates of return, shop around for the highest
various aspects of your finances, such as investment possible interest rate. Bach also advises automation for
deposits and mortgage principal pre-payments. Then purchasing U.S. savings bonds, either EE bonds or
the system works for you without the need for inflation-adjusted I bonds. U.S. savings bonds can be
continuous thought and discipline. purchased automatically through the U.S.
government’s EasySaver plan
The book begins with a lively exchange between Bach (see www.savingsbonds.gov for details).
and a prosperous 50-ish couple. The wife had attended
one of his Smart Women Finish Rich seminars, the title Chapter 6 advises readers to buy a home, take out a 30-
of one of Bach’s other books. The couple describes year mortgage, and make the equivalent of 13
how they practiced many of the principles that Bach mortgage payments annually, instead of 12, using a bi-
taught his students. Ultimately, however, the couple weekly payment system. In Chapter 7, Bach suggests
was able to teach Bach a thing or two because they strategies to accelerate consumer debt (e.g., credit card)
actually “walked his talk.” repayment to free up money to invest. For example,
renegotiating interest rates with lenders and debt
Virtually every major financial decision the couple consolidation at a lower interest rate.
made was automated: from the 10% of their paychecks
placed in retirement savings plans to mutual fund In Chapter 8, Bach concludes the book with a social
“automatic investment plan” deposits to an automated conscience focus by discussing how to “give back” to
bi-weekly mortgage principal prepayment system that others and to society via automatic tithing. “Take a
Bach says can save an average homeowner $100,000 or percentage of your income and start donating it to some
more in interest. The key to their success, the couple worthy cause,” he advises. Bach further explains that
explained, was “to set yourself up for success.” the word “tithe” comes from an old Anglo Saxon word
for “tenth.” The original idea was that farmers were
A frequently used term in The Automatic Millionaire is supposed to donate 10% of their annual harvest. He
“The Latte Factor,” a trademarked phrase that uses urges readers to become “givers” as well as “savers”
fancy $4 coffees as a metaphor for all types of and to “use the same tools that can enable you to
frivolous, discretionary spending. In Chapter Two of become an automatic millionaire to make the world a
the book, Bach describes a former student, Kim, with a better place.”
$5 a day double nonfat latte and nonfat muffin habit.
Figuring a 10% annual return on this money, if it were Many financial planning and investment books
invested instead in a 401(k) with a 50% employer describe automated money management strategies.
match, Kim could have about $1.7 million at age 65; Financial counselors and educators have taught
she was 23. concepts like “pay yourself first” for decades. The
Automatic Millionaire’s unique contribution is that it
The remainder of The Automatic Millionaire describes pulls all of these ideas, most of which are not new,
specific ways to automate your finances. Chapter together in one publication. According to Bach, if a
Three describes the “pay yourself first” principle and financial plan is not automatic, it will most likely fail.
advises readers to save the equivalent of one hour’s Most people are simply too undisciplined, or too busy,
worth of income each day. Another good benchmark or both, to routinely tend to all of the above-mentioned
to shoot for is saving between 10% and 15% of your financial tasks every day, week, or month. Further
gross income. Chapter Four describes how to make information about automating financial planning tasks
investment deposits automatic, including funding a can be found on the author’s Web site
retirement plan at work and “maxing it out,” if www.finishrich.com/automaticmillionaire.
possible, and automating brokerage firm deposits for

©2004, Association for Financial Counseling and Planning Education. All rights of reproduction in any form reserved. 83
Financial Counseling and Planning Volume 15 (1), 2004

NOTES

©2004, Association for Financial Counseling and Planning Education. All rights of reproduction in any form reserved 89

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