Book Review: The Automatic Millionaire


If you’re just hearing about this book for the first time, it probably won’t surprise you to know that it was a #1  New York Times best seller.  “Well, duh,” you would say, “It has the word millionaire right in the title, next to the word automatic, and a subtitle of ‘a powerful one-step plan to live and finish rich.’  If there’s one thing that attracts the attention of the average American, it’s the lure of easy money.  So, what’s this Bach guy’s scam?”

Besides being rather rude, you’re misunderstanding the whole point of the book.  While David Bach does believe you can become rich, and do so with minimum effort, this is no get rich quick scheme.  In fact, if anything, Bach uses The Automatic Millionaire to promote the idea that the best ways for anyone to become rich (besides marriage, inheritance, or being exceptionally good at sports or acting) is a lifetime spent saving and investing regularly.  While not very exciting, it is pretty effective; so, let’s get into the nitty gritty of the Automatic Millionaire plan.

Overview:

The Automatic Millionaire starts with a few words of welcome and encouragement directly from Bach, then the first chapter examines the financial situation of Jim and Sue McIntyre.  Bach relates how, by saving small amounts regularly, automating their expenses, and watching their spending on small, everyday purchases, they were able to accumulate a multi-million dollar net worth by their mid-fifties.  Since all of those methods are suggestions Bach makes later in the book, this story does provide an overview of coming attractions.

In the second chapter, we start to get into the meat of Bach’s ideas, starting with the Latte Factor.  The Latte Factor, which Bach recites in a variety of his books, is short hand for anything you regularly spend money on without even thinking about it (like buying an expensive latte every morning on the way to work…).  He makes the point that by cutting out those regularly expenses (or at least, cutting back), the small amounts spent everyday will soon add up, allowing you to save or invest the money that would otherwise go towards regular consumption.  Bach suggests charting all your spending for a week to see where your money goes, and make changes accordingly.

For the third chapter, we cover another biggie for Bach: paying yourself first.  By this, he means to put aside your savings for retirement before you spend any other money.  He also strongly promotes 401(k)s and similar pretax retirement accounts, so you can pay yourself even before paying the government.  Starting a theme that will carry through the rest of the book, he highly encourages people to automate their contributions.  The fourth chapter takes the automation even further, extending it from 401(k)s to IRAs and automatic bill pay.  There’s even substantial advice on how to allocate the money you put into your retirement accounts, including example investment portfolios and advice on target date and asset allocation funds.

The last chapters all discuss how to automate various other aspects of your life.  Chapter five gives advice on automatically building up an emergency fund, by transferring money into a money market account or regularly purchasing savings bonds.  In chapter six, he covers buying a home, and makes the suggestion to set up a biweekly payment with your bank, causing you to pay off your mortgage quicker and pay less in interest to the bank.  (This is somewhat controversial, as some commentators have noted that you can do the same thing yourself, by sending in extra checks to the bank; Bach’s response is that he doubts people would seriously do that all the time, if not being coerced by the bank.)

For chapter seven, he covers his Dead On Last Payment, or DOLP method to get rid of credit card debt.  (I covered the DOLP method and other modes of debt repayment before, and found the DOLP technique to be wanting.)  Chapter eight covers ways of regularly giving to charity (tithing) made automatic; some of the resources he provides for finding and donating to charities via the internet are included in my Finding Charities blog entry.  Finally, the last portion of the book is another encouraging message from David Bach as well as some testimonials from people who found his advice helpful.

Pros:

-Simple to Follow: Bach has a very plain spoken writing style.  It’s easy to follow and understand his points, and the few tables and graphs in the book serve to clarify his points further.  It’s definitely written in a way to appeal to those just getting started in managing their own money.

-Excellent Resources: One of the best points of the book is the number of resources to which he provides links.  The fourth chapter contains a list of good mutual fund companies, chapter five mentions several online banks, and chapter six is full of resources for a would-be homeowner.  If you don’t know where to go to apply the advice he gives, he lists plenty of links to guide you in the right direction.

-Broad Coverage: The subjects covered in The Automatic Millionaire span a large number of the financial decisions that the average person will have to deal with over the course of their life, from home buying to saving for retirement.  If you’re looking for a broad, lifetime guide to your finances (and want something a little less cramped with numbers and figures than Yes, You Can Get a Financial Life!) this book would be pretty good.

Cons:

-Limited depth: The disadvantage of being so broad is that the book does not have the opportunity to go into depth on many of the covered topics.  If you’re looking for information on how to build your own retirement portfolio or what to look for when buying a house, you’ll need to do additional reading elsewhere.

-Not Everyone Likes Lattes: And no, I’m not trying to take a crack at Starbucks.  What I mean is, Bach’s driving principle (besides automating everything possible) is to cut back on little, regular expenses in order to find the money to invest.  However, if you already are good about not giving into to regular indulgences like a morning latte, he offers limited help in saving.  Suggestions on cutting serious expenditures are nonexistent, so if you don’t have a Latte Factor, you’ll find the first part of this book unhelpful.

-Some Bad Advice: While the book overall gives some good guidance, there are some areas where Bach’s advice falls short.  His DOLP method of credit card repayment, for example, is far from the most effective.  The suggestion to use a biweekly payment plan also catches some flack, acknowledged in the book itself, for spending money unnecessarily to pay your bank to set up and administer this alternate plan.  (Here, Bach acknowledges the critics and even gives a few alternate suggestions.)  Be aware while reading that other advisers have come to different conclusions on some of the issues Bach covers.

Conclusion:

Overall, The Automatic Millionaire is a good introduction to personal finance, saving, and investing.  If you want to be able to put your financial life on auto-pilot and worry about other things, Bach provides some excellent, very solid advice.  Be aware, though, that he’s known for covering much of the same advice in many of his other books, like Start Late, Finish Rich and Smart Couples Finish Rich, simply tailoring the advice more to the specific target audience.  If you fit those targets, the other books might prove to be more relevant for your needs; if not, The Automatic Millionaire makes a good, wide-ranging introduction to personal finance.

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