The Automatic Millionaire

By David Bach

Short summary

“The Automatic Millionaire” is another light and fun read. It provides much more practical advice on how to achieve financial freedom. If you care more about getting a recipe and less about philosophy of personal finance this is the book for you. It is a step by step process to achieve wealth. It  covers areas like creating a budget, paying off debt, setting up automatic savings and investment plans. Also gives a great example that the author calls “The Latte Factor”. The Latte Factor discusses the idea that saving small amounts in our daily lives can add up over time. These daily savings could provide a good foundation for investing. In the long term, small steps, small daily savings can make a significant difference at retirement. If you want to explore more this concept, read also “The Compound Effect” by Darren Hardy. This another fantastic book. 

“The Automatic Millionaire” Takeaways

• Start small and make saving a habit. Small steps will add up over time, and the habit of consistently saving can lead to long-term wealth
• Pay yourself first. Prioritize saving and investing a portion of your income before paying other expenses
• Live below your means, consistently.
• Automate your savings. Set up automatic savings and investment plans to help ensure that your goals are being met
• Invest in yourself. Continuously learning and improving your skills will help increase your earning potential and financial stability
• Make your money work for you. Invest in low-cost, diversified portfolios that can grow over time
• Diversify your investments. Diversifying your investments can help reduce risk and increase returns.
• Take advantage of tax-deferred retirement accounts (like 401ks and IRAs). These are great to reduce your tax obligations in the short term and move them to later in the future when your tax bracket will be lower.
• Focus on consistent, long-term saving and investing habits, rather than short-term gains.

Quotes that resonated with me:

• “The secret to becoming an automatic millionaire is living below your means.”
• “The most powerful force in the universe is compound interest.”
• “Making your money work for you is the key to financial freedom.” 
• “The key to becoming a millionaire is to start early and automate your savings.” 
• “The secret to becoming an automatic millionaire is to pay yourself first.” 
• “The key to becoming a millionaire is to start with a plan and stick with it.” 
• “The difference between being rich and being poor is simply the habits you form.”

“The Automatic Millionaire” Practical Advice

• Start small and make saving a habit. Set aside a small percentage of your income each month, and gradually increase the amount as you are able. Automate the process by setting up a direct deposit from your paycheck into a savings account
• Pay yourself first. Prioritize saving and investing a portion of your income before paying other expenses. Set up an automatic savings plan before paying other bills
• Live below your means. Look for ways to reduce your monthly expenses, such as cutting back on dining out, shopping for sales and discounts, and negotiating bills
• Invest in yourself. Invest time and resources in your education and personal development
• Make your money work for you. What I do, for example, is invest in low-cost funds. Index funds, for example, are investment vehicles that track a market index, such as the S&P 500, and offer a low-cost way to diversify your investments. Exchange-traded funds (ETFs) offer a similar option, and a robo-advisor can help you manage your investments and make recommendations based on your goals and risk tolerance. Automate a monthly investment amount, focus on low cost funds and keep investing consistently. The compound effect of continuous investments over time will make a significant impact on your wealth in the long term 
• Diversify your investments. By spreading your investments across different asset types, such as stocks, bonds, and real estate, you reduce the risk of loss if one particular asset type performs poorly 
• Take advantage of tax-deferred retirement accounts. These accounts offer a great way to save for retirement while also taking advantage of tax benefits. Contributions to these accounts are made with pre-tax dollars, and the investments grow tax-free until you withdraw the money in retirement

To read more on Amazing Investing Books for Beginners click here.