Saturday, May 29, 2010

The Automatic Millionaire - book review

I got a book last week from the second hand shop called “The Automatic Millionaire” by David Bach. It was published in 2004, so not too long ago. I was intrigued by the title as my aim is to be a millionaire. I wondered what this book would teach me. I have to say I didn’t think much of it. I guess if you don’t already pay yourself first but you do waste money every day on things like coffee and cigarettes, eating out/anything like that then it is a good book.

If you already have some basic money sense, save some (preferably 10% or more) of every pay, don’t eat your breakfast/lunch/dinner out or at cafe’s, don’t buy magazines every week or whatever then it’s not really going to teach you anything.

I understand that “The Latte Factor” discussed in it is about finding where you waste your money, and is good for those who don’t realise what a waste it is to buy a coffee and cake at the cafe every day, but most people I know don’t do that. “The Latte Factor” is basically where you watch your spending, realise you are wasting $10 a day on cafe coffees, invest just half of that and at the end of 40 years, assuming a 10% annual return you will be a millionaire.

Using myself as an example, I don’t work, so am at home most days. If I do go out it’s usually to a park, friend’s house or to buy groceries. There is nothing I spend on every day, or even every week. I don’t buy magazines or chocolates as my weekly treat. I don’t smoke, drink alcohol or even drink tea or coffee at all. I never have and have no intention of starting. There’s not even anything I buy monthly I don’t need.

I don’t have cable, my mobile/cell phone is prepaid, so I never end up with a nasty bill. I only buy clothes when necessary. I cannot list a single vice of mine where I could apply “The Latte Factor”.

So, onto the automatic idea in this book. It is automatic, but I already do it and I want to be a millionaire sooner than 40 years. Basically, if you get payroll to “automatically” deduct 10% of your wages and put it in savings you won’t notice the difference and hence you get to eventually become an “Automatic Millionaire”. Maybe I think this is so basic because I thought it was the first thing most people do. You pay yourself first. It is the number 1 thing in all financial books. How are you going to save if you pay everyone else first and try and save what is left you just won’t save.

I guess the difference is that most people don’t have an automatic savings plan in place. They do it themselves every pay, but most people don’t actually do that.

The book goes on to talk about automating every aspect of your budget. Mortgages get automatically deducted (when this book was published, I go a mortgage not long after and it was just how the banks did it, automatic deductions from a linked account!). Then there are all your bills, such as electricity, gas, water, land rates etc... Everything can be set up to be a direct debit from your account so you automatically have a budget.

It is a good idea for those who aren’t good with their money, but to spend almost an entire book talking about it was a bit much for me. If you are just starting out with money management, it could be a good book to read, but it wouldn’t make it to my top 10 list, probably not even my top 50 list. There are much better books out there, which I will post on soon.

3 comments :

  1. You sounds so much like me. I am a SAHM, dont go out much, donk drink or smoke, do have a prepaid phone and no pay tv.

    Although I don't "pay myself first" I am disciplined enough to make sure I have money put into savings every fortnight.

    I read a lot of finance books too and some, like this one, seem to focus on one idea and run with it for the whole book which isn't very helpful. Thanks for sharing your opinion on this one. :-)

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  2. It can be a truly noble pursuit and it can be liberating and enrich your life in more than just money terms - but unfortunately $1million is simply not enough in 2010.
    My wife and I are already debt/asset millionaires and reckon we need about $6million to truly follow our top of the pyramid dreams.

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  3. Thanks Alicia.

    Hampers, you definitely need more than $1,000,000 today, my aim was to do it all on my own and have a networth fo $1m, no debt.

    It started off as $1,000,000 but my real personal goal is much higher, and no debt at all

    Congrats on reaching the millionaire status. :)

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