Book 501: The Automatic Millionaire – David Bach

I came across this book when I started listening to the Better Off podcast (Apple link), which is sponsored by Betterment (more on that later – including a referral link ;-D). David Bach, the author, was the guest on the very first episode. I was intrigued enough by his interview that I wanted to read the book. It sounded a lot like what I discovered on my own, but I wanted to verify and see what other tips or tricks he offered. But before I talk about the book, first the back story:

After completing my 30×30 project a few years ago and getting rid of my credit card debt, I’ve become much more interested in personal finance and making sure that I am planning for the future, whether it’s mine, that of any future children I have, or the fact that my mom, dad and step-mom (and at least one aunt) are all rapidly approaching retirement age.

I don’t know what the older generation in my family’s plans are for retirement, but for some reason (aka we don’t really talk about money) I’m not sure how secure they are or feel they are as they approach retirement and I don’t really care.* I know that I am TERRIFIED, and have been since I started working as an adult.

Unfortunately, and this probably makes me a bad son, but I’m not terrified for them, but for myself. Sure I should be worried about them, but you know what they’re going to have access to at least some social security and medicare/medicaid. Who knows what will be around in 33 years when I hit 65 or even 18-25 years when I hit my 50s and with what I’m doing now can hopefully retire a little early.

*That’s a little reductive, Don’t get me wrong I’m a not a completely wretched son. I’m a little worried for them, like 20-25%. But for me 100% even with all I’m putting into place. – Seriously though ask any of a number of friends, or my sister and they will attest that I am hounding all of them even before this book to do better about saving and investing and planning for the future!

Now on to the ACTUAL book and less fretting/planning about me, which frankly I could probably turn into a blog on it’s own!

Bach’s theory is very simple and pretty much what I figured out on my own. It’s broken down into a 6-7 easy steps that any one can do and no matter how little you make or how little you can save you can start. I’ve listed his basic premises, scored myself and explained if I’ve done it/have plans to do it at the very end of this blog.

The basic premise, regardless of which of the six steps you are doing is to AUTOMATE it and forget it. (Or really occasionally check on it and bump up the amount of savings.) And he’s not wrong. I talk about this below, but I’d basically figured this out on my own and have slowly over the last year and 10 months bumped my way up to where Bach says you should be to start. I’m not quite to the point where I’m saving 20% of my Gross income, but I could get there in the next few years. I could really push myself and try and be like JP at The Money Habit or Mr. Money Mustache (blog links), both of which are pretty good. I’ve read MMM for a while and my friend Caitrin recently sent me something about JP and I love her style.

There was one thing I disagreed/questioned in the book and one thing I was so happy to see him include in the book that I wanted to call them out:

Questionable: Buying a home and paying it off
I get it. Earning equity, not paying someone else what you could in essence be paying yourself. What I have concerns about are the incredibly personal decisions when it comes to owning a home. I did think that Bach did a great job of talking about home ownership as an investment and even about purchasing a home if you’re only going to be there a short while, but I feel like if he’s going to recommend that he really needs to do a much deeper dive into it. Think of how relationships have changed in the decade since this was first put out. There are millions of us between the ages of 25 and 40 that are delaying marriage and many life events such as buying a home because of the two recessions that happened as we came of age and graduated. Out of all of them, this was the only one that was a bit too “one size fits all” for me. That being said I get it and understand how it is a crucial piece in becoming an Automatic Millionaire.

YAY!: Charitable Giving/Tithing
I was sooo happy to see this one on his list of things you could/should do. He actually added this in because many of his clients would always mention that they were doing this anyway in addition to paying themselves first and slowly becoming automatic millionaires. Supporting a nonprofit or a religious institution is incredibly rewarding and vital to many community services.

And that’s it. It’s pretty much a cakewalk and like I said something I’d figured out on my own. I wish I would’ve known about this when I was in high school and making pretty decent money, especially over the summers, but I didn’t. DAMN YOU COMPOUND INTEREST! But thanks to my first boss, my own semi-rational fears, and my somewhat tech-savyness I don’t feel like I (or quite a few of my friends now :-D) are completely unprepared for what the future brings.

Recommendation: EVERYONE SHOULD READ IT. I agree with many of the testimonials in the back of the book that this should be required reading in High School. I learned very little if anything about personal finance in high school OR undergrad and this is written at such an easy level (8th grade allegedly) that anyone really should be able to pick it up and start creating a better future for themselves or their children. It doesn’t hurt that he has a catchy writing style. I’ve already put two additional books on hold by him to see what he has to say for couples (Smart Couples Finish Rich) and for older individuals (Start Late, Finish Rich). We’ll see if his advice is as simple and understandable as it was in this one.

Opening Line: “What if I told you that in just an hour or two I could share with you a system that would slowly but surely transform you into a millionaire?”

Closing Line: “Until we meet again, enjoy your life and enjoy the journey. Make it a great one.” (Not whited out as this is a work of nonfiction.)

The SIX steps and my progress

1. Get rid of your latte factor – Find that little thing that you don’t think is costing you money and STOP doing it. Whether it’s buying a daily coffee, buying to many books (no shade ;-D), or adding useless items to your cart in the grocery store. Whatever it is MAKE IT STOP!
   • 50/100 = MEH
   • My two “latte factors” are Dunkin’ Donuts and books.
   • I somehow let myself spend nearly $2,000 on coffee and breakfast sandwiches last year. WTF!? I knew I was doing it, but I also knew I shouldn’t. I’m proud to say that before I started this book this week I already pre-planned my food and have done well and only gotten a sandwich and coffee once! I’m working on making it a treat again. Every other week or once a month. NO need to spend thousands on it.
   • The books are a different issue. I’m already committing to using the library more, we have an awesome system here in Boston and I used to use it a lot more, but I’ve gotten lazy. I do however often buy books as souvenirs so I’m a little less concerned about this one, but I do need to do better.
2. Pay yourself first – Pay yourself an hours worth of your time before you pay anyone else, including the government.
   • 100/100 = CHECK 
   • Hello 403(b), you are my friend and have been since my first boss “off the record” told me why it was important and encouraged me to thoroughly read the paperwork provided to me after a year. I even, on my own before reading this book bumped my paycheck reduction up to 10% and lo and behold what does Bach recommend? Working your way up to at least 10%.
3. Make it Automatic – For as many of these as you can schedule them with your bank. Make it happen before you pay your bills or you do anything else. Even if you start with $5 a month that’s a start and then slowly bump it up $1 a month or $5 a month by the end of a year you’d be stashing away $60 a month.
   • 100/100 = CHECK
   • I figured this one out on my own before reading this. First, there was my 403(b) at work. Then I kept trying to save money in my savings account but I always used it to pay off purchases. FAIL.
   • The big aha moment for me was with Betterment. In August of 2015, I made a decision to start depositing $25 a week into an investment account with Betterment. I signed in selected my goals and started it automatically the day after my then weekly payday. I didn’t even notice the money was gone!
   • When you pick your goal (retirement, vacation, house, marriage, education) and the amount you can do or the time frame and Betterment will tell you the third piece (time frame or amount) and will make a suggestion on the aggressiveness and portfolio balance.
   • I’ve worked my way from $25 a week to $75 a week in just under two years and have a goal to get it to at least $115 within the next year. That’ll be $6,000 a year! For someone who never kept more than $500 in an account because it could always pay something off this is pretty darn good! I also know more about investing than I ever thought I would and frankly it is fascinating.
4. mate for a Rainy Day – Build 3-6 months (or whatever makes you comfortable) of monthly expenses in savings.
   • 75/100 = GETTING THERE
   • As I mention above, I was no great saver. As soon as I got any decent traction I would use it to pay off a credit card rather than my checking account. Or I would only save for vacations and big ticket items. Now that I’ve gotten traction with Betterment and getting into the habit of saving I’m starting again on this one. I probably have a month’s tucked away already, but I want to get it up to three months minimum, but hopefully six months. The big tip here was to make sure they money is for you. Don’t keep this in a regular savings account, look for a money market account that has a higher potential for savings. They’re all pretty low right now 1%, but they can go much higher if we continue to see improvement (allegedly).
5. Home Ownership – In order to truly make it into the millionaire stratosphere you have to play the real estate game.
   • 50/100 = Meh
   • I can’t decide if I agree on this one or not. I understand his principle and I am like 75-80% in his court, but it just seems a bit “American dream”-y to me. And yet, I have taken steps toward becoming a home owner. I have taken the courses provided in Boston that help you qualify for first time buyer loans and better interest rates. I have actually even filled out an application and was pre-qualified to purchase the house in the median income lottery.
   • I think this is a huge decision and an incredibly personal decision for anyone to make and there is so much to take into account. I talk more about this above.
6. No Credit Card Debt – A no brainer. Don’t carry credit card debt from month to month. Your money should work for you, not cost you.
   • 90/100 = ALMOST
   •  I would say 10 out of 12 months I don’t carry a balance forward to the next month. That is 1,000x better than when I had a balance I’d carried for years and chipped away at with payments much larger than the minimum, but not enough to really get rid of it.
   • I need to tighten this up. I know I can do it, I just get lazy or spend a smidge too much on the holidays. My credit has vastly improved since I paid everything off, but I still don’t need to carry a balance. Maybe a personal goal next year will be $0 in interest charges on my cards.