November 28, 2020

Gen Z Conservative

The thoughts of a young conservative on political issues relevant to all ages

the automatic millionaire

A 2020 Review of “The Automatic Millionaire” by David Bach

Introduction

Before I start my review of The Automatic Millionaire by David Bach, let me just say that I know what you’re thinking. “Really, a book called The Automatic Millionaire? That sounds like a book sold by a huckster to the gullible that don’t have the discipline to save and instead want some magical get rich quick plan. Don’t try to sell me on that nonsense!”

Frankly, before I started The Automatic Millionaire I felt the same way. I saw it on my reading list and ordered it, but had forgotten why I added it and wasn’t all that excited to read it. Although in the past I’ve read and reviewed books like Rich Habits, Your Money or Your Life, and The Millionaire Mind, something about the title The Automatic Millionaire turned me off at first.

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But, I overcame my initial hesitation and read it and I am so glad that I did. David Bach isn’t a huckster or fraud; this isn’t a get rich quick, penny-stock investing book like you might think a Jordan Belfort wannabe would write. Instead, it’s a detailed look at the small actions in your life, most of which relate to saving and investing early in life, that make it possible to easily build wealth over a lifetime, no matter what your job is.




The information in it is well-presented and easy to follow and apply to your life, especially if you’re young, so I think it’s well worth reading. To get a detailed explanation as to why The Automatic Millionaire is worth your time, just read this summary and analysis of it!

Image at top from: Budgets are Sexy


Summary of The Automatic Millionaire

Like I said in my introduction, I was a bit hesitant to read The Automatic Millionaire. To be completely honest and transparent, I thought it would be a waste of time to read. The title didn’t really inspire confidence that the subject matter in it would be worth the time it took to read it.

However, as you’ll understand after reading this summary of The Automatic Millionaire, Bach does and absolutely terrific job of providing useful advice, especially for young investors.

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Namely, Bach isn’t trying to sell you on specific stocks or an investment strategy. This isn’t a penny stock salesman calling you up on the phone in 1980 and demanding you buy shares of some ridiculous company if you want to get rich.

Instead, Bach provides useful and actionable general investing advice that could be utilized by anyone that wants to build wealth over a lifetime. More specifically, Bach writes about how you can use automatic biweekly mortgage paymentents, automatic transfers of ten percent of your income to an investment account, and utilizing low cost index or mutual funds, all while avoiding debt, to build wealth and become a millionaire no matter what your level of income (within reason of course).

The two most poignant sections of The Automatic Millionaire are, to me, when Bach describes the monetary benefits of a) foregoing a $5 cup of coffee a day and instead investing that $5 (or, more easily, investing $150 a month) and b) how making half a monthly mortgage payment every two weeks rather than waiting a full month between payments can help you save tens of thousands, if not hundreds of thousands of dollars.




The Automatic Millionaire and “The Latte Factor”

Bach refers to the saving of that $5 a day, or preferably even more, as “paying yourself” and “the latte factor.” Really, I guess they’re two slightly different subjects. Bach says that to “pay yourself,” you should invest about 1 hours worth of your daily pay each day, or total that amount and invest it every two weeks when you get your paycheck. The “latte factor” is foregoing small daily expenses, such as a latte or cigarettes, that total a large sum and could instead be invested. In Bach’s view, those daily expenditures rarely are healthy or provide much of value to your life, so cutting them out is painless and helps make you money.

the automatic millionaire and paying yourself
Pay yourself…it will pay off by making you more money.
Image from: The Automatic Millionaire

Most importantly, as can be implied by the title The Automatic Millionaire, Bach recommends setting that investing up where it will automatically transfer from your bank to your investment account each week or month. By making it automatic, you don’t have to worry about discipline. The Power of Habit doesn’t even matter! Rather, making it automatic takes it out of your hands, so you don’t have to worry about forgetting or not having the discipline to pay yourself. That idea of making investing automatic is the central idea of The Automatic Millionaire and it’s what makes it, I think, such exceptionally good investment advice, especially for young investors that need to start investing now.

Biweekly Mortgage Payments

The other aspect of The Automatic Millionaire that I thought was very important and stuck with me was the idea of paying your mortgage every two weeks rather than every month. Bach points out that by doing so, you’re able to pay the same amount of money each month, but will pay down the principal faster. Paying down the principal faster means you’ll pay less in interest and pay your mortgage off faster. That’s something everyone should pick up on and start doing.

biweekly mortgage payments in the automatic millionaire
The math of biweekly mortgage payments as described in The Automatic Millionaire.
Image from: Michael Deery

And not only does Bach explain in The Automatic Millionaire why making those biweekly mortgage payments is useful, he also gives actionable advice on how to set it up with your mortgage provider and gives tools you can use so you can see how much you could save by making them. I highly recommend you read The Automatic Millionaire so you can learn more about them!

Overall, as with the section on investing and later chapters on paying off debt and saving money, Bach’s main point with mortgages is that you can save yourself (or in the case of investing, make) lots of money by making the right initial decision and then making it automatic. Doing so takes it out of your hands and allows you to forget about money and instead live your life while your money automatically goes into investments or paying off debts. That advice is very important and, I think, effective.

If this summary of The Automatic Millionaire inspired you, get invested automatically here, and get $10 for doing so: M1 Finance




Analysis of The Automatic Millionaire

I think that The Automatic Millionaire is a personal finance book that every American, but especially young Americans should read. More so than those books I mentioned in the introduction. More so than books about investing, such as The Intelligent Investor.

That’s because Bach’s central tenet and piece of advice, which is that you should make your investments in low-cost index or mutual funds and then make those investments automatically, is the only way America can avoid the coming retirement crisis.

That’s because, right now few Americans have the discipline required to not make their investment decisions automatically. Perhaps a few people that are really into investing will do it anyway, but even they might not. And everyone else will either forget or find some “better way” to spend their money that month…and the next…and the next until it’s too late and they can’t save enough to retire without government assistance.

So, what should we do? What should older conservatives tell young conservatives that are about to be “real adults” and will need to start saving for retirement? Well, they should tell them to read The Automatic Millionaire so they can see why investing early and “paying themselves first” by avoiding their own “latte factor,” whatever it is, will make them much less stressed out later in life.

investing early in the automatic millionaire
The idea of investing early as described in The Automatic Millionaire.
Image from: My Stock Market Basics

My only criticism of The Automatic Millionaire is that, at times, Bach’s advice is slightly outdated. The general concept of making everything automatic is timeless, but some of his advice on how to set up those automatic investments is outdated as the book was written in 2004. So, some details of what sites to use for research and interest rates is out of date due to recent changes.

But, generally, at least, The Automatic Millionaire is still very relevant to everyone’s life. Especially the lives of young Americans that need to start investing now.

Conclusion

Finally, I think it’s worth noting that fiscal responsibility is, theoretically at least, a tenet of conservative belief. So, be the light upon the hill. If you’re a young conservative, especially a college conservative that can take classes on finance and investing, start investing now so you can be free of dependence on the unsustainable Social Security program later in life. Be fiscally responsible first, and then demand that your government and fellow citizens do the same. But don’t be a hypocrite. Invest now!




Take David Bach’s advice. Invest now and make it automatic. Then you’ll be an The Automatic Millionaire.

If you’re new to investing but want to get started after reading this book review of The Automatic Millionaire, consider creating a free investment account on my brokerage, M1 Finance, today. When you create and fund an account with $100 using this link, you’ll get an account bonus (as will I) and can easily set up an automatic investment schedule of the type Bach recommends. Check M1 out here: M1 Finance

By: Gen Z Conservative


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