The Automatic Millionaire – Summary & Review

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The Automatic Millionaire (Amazon) is a personal finance book that focuses on setting up simple systems to allow you to build wealth “automatically”. It’s not a get rich quick scheme, and for most folks who are already on the path to early retirement the concepts will be well known. Even though I’m fairly far down the FIRE (financial independence, retire early) path at this point (13 housing units + significant stock holdings) I enjoyed taking a morning to read it while sheltering in place due to COVID19.

One of my favorite stories in The Automatic Millionaire was about Jim & Sue McIntyre, who became millionaires just through saving conservatively and paying themselves first. They didn’t use leverage and made a combined $50k a year.

The McIntyre’s system in brief:

  • Pay down mortgage using bi-weekly payments rather than the traditional monthly. This converts a 30 year mortgage into a 26 year mortgage.
    • This has two benefits: (1) Housing payments are aligned to paychecks, which are often bi-weekly rather than monthly, (2) you are saving more money and since it’s automatic you won’t be tempted to spend it.
  • Make extra payments each month on top of this. Once the first house is paid off, rent it out and move into another house and do it again!
  • Automatically shave off a portion of income for retirement savings
  • They started by paying themselves 4% and increased it over time.

As with all good personal finance books The Automatic Millionaire is not a “get rich quick” scheme. Instead, the emphasis is on making wealth creation effortless and slowly adapting your spending habits to consume less of your income by setting up systems that invest money before it ever hits your bank account. Over time you should aim to increase the percentage going into each of these buckets, so that you eventually get to a point where your investments comfortably replace your normal income.

“The government is pretty smart. It figured out years ago that people couldn’t budget, so it set up a system to make sure it got ‘paid first’. Not only did the government arrange to get paid first, it automated the process.”

David Bach, The Automatic Millionaire

A main premise of the book is that if you make it difficult to save for retirement, people won’t do it at all. People hate counting calories even if it’s one of the best ways to plan out a diet, and realistically most people have no interest in setting a hard budget for themselves either. There are clear influences from Rich Dad, Poor Dad and The Richest Man in Babylon in this book, emphasizing that you “Pay Yourself First” meaning that you build your investments before letting the money sit in your checking account where you’ll be tempted to spend it.

Purchase The Automatic Millionaire on

One exercise from the book shows you how to become wealthy in a fairly straightforward way. Divide your savings per week by your income per week. Multiply this by the number of hours you work per week to determine how many hours you are “working for yourself”. If you spend everything you earn, you are working for the benefit of your company, the government, and the companies you spend your money with. The average American saves 5% or less which means only 22 minutes of the day is spent working for them to keep.

How much you pay yourself first determines your wealth level in the future based on gross income:
Poor: 0%
Middle class: 5-10%
Upper middle class: 10-15%
Rich: 15-20%
Rich enough to retire early: 20%+

A few other tidbits I took away from The Automatic Millionaire:

  • If you spend $5 on coffee, $3 on snacks, and $X on that could be $1MM in 30 years at historical 10% stock growth rate.
  • Part of why we spend so much money is that we receive 3,000 messages a day via advertisements to try to convince us to part with our money. This money is not wasted, companies wouldn’t spend it unless it worked.
  • People hate being told to make budgets, as much as being told to count calories for a diet. Even if you know you should, you won’t. It’s human nature. Instead you need to create a system that doesn’t feel like you are depriving yourself. It will not work, PAY YOURSELF FIRST.
  • The amount of lottery tickets sold each year increases. People feel like the only way to get ahead is to get lucky.
  • Diversification is always important. Employees at Citibank thought their company stock would never go down until they lost 90% of their value in the 2008 financial crisis. Equivalents of this today are thinking FAANG companies are unstoppable.
  • The fastest way to become wealthy is to save as much money pre-tax as possible before the government gets their cut. If you can legally save $18,000/yr why settle for $4k/yr as your 401k defaults may be set to?
  • Keep 3-24 months total monthly expenses in emergency savings in cash. Whichever amount allows you to sleep soundly should determine the right figure for you.

“The real secret to finishing rich while you’re still young: becoming a homeowner.”

David Bach, The Automatic Millionaire

One of the main points of the book is that along with setting up automatic contributions into your 401k you should buy a home, and pay it off early. Switching to bi-weekly payments aligns mortgage payments with your paychecks (in most cases) and allows you to pay down a 30 year mortgage in 26 years. Additional payments beyond this go directly to principal and will help pay it down even faster. Housing is the largest expense for most people, owning a home outright significantly increases the amount you can save per year.

Six reasons why homes make great investments:

  1. Forced savings
  2. Leverage
  3. OPM
  4. Tax breaks
  5. Pride of ownership
  6. Real estate has proven to be a great investment as prices tend to consistently rise, even if you include the worst housing meltdown in history.

There is also a bit of Dave Ramsey channeling in this book, emphasizing the importance of paying down debts. You should pay down non-housing debts first before worrying and creating an emergency savings account before any kind of investing.

The general playbook is cover debts:

  • Create an emergency savings fund with 3+ months of savings
  • Pay down credit card debt
  • Pay down student loans and other non-housing debt

Then start investing:

  • Setup automatic contributions to your 401k (Roth or traditional depending on income), increasing both the percent and amount each year.
  • Setup bi-weekly payments on your mortgage rather than monthly, and possibly add an additional payment each month to this. When the home is fully paid down, rent it out and buy another.
  • Automatically contribute to a taxable account with a diversified basket of ETFs (exchange traded funds) using a service such as Betterment or Wealthfront.

Overall this book is fun, quick, and great read. It’s basically a distilled version of a number of prior personal finance books with an emphasis on making the whole process easy. The concepts discussed are universal and conservative so I would say that it’s especially helpful for beginner investors.

I purchased my copy of The Automatic Millionaire on Amazon but if you can get a copy at your local library, even better!

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