Sunday, January 13, 2019

The Automatic Millionaire - Book Review

The Automatic Millionaire by David Bach
The Automatic Millionaire is a simple, easy to read, and easy to follow.

What is the book about? Here are some of the author's own words:
[This book provides a] powerful one step plan to live and finish rich... A system that would slowly but surely transform you into a millionaire… a system that you can set up in just an hour or two that would require no budget, no discipline…
The main message in this book is that automating your savings and investing makes things easier. If you set up your automatic plan now, and pay yourself first, you are free to live the rest of your life how you want while you sit back and watch your accounts grow.

David Bach shows how setting aside only a couple dollars a day can turn into a large amount of money. Over time, your money will start earning money. The money that money earned will earn money... you get the idea. Small amounts can compound to large amounts over time.

Not sure how much you should be setting aside? David Bach provides some guidance on savings rates depending on where you want to end up in life.

He also discusses how it is important to not try to keep up with the Joneses. Most people rich people don't actually look rich. They live a modest life. They are also not overextended and deeply in debt. That is how they got rich and stay that way.

I'd recommend this book to anyone starting out with investing. It presents a step-by-step approach to getting started. Most importantly, the author keeps this process as simple as possible.

Interested in getting a copy of this book? It is available here on Amazon:

The Automatic Millionaire by David Bach

Want to know even more about this book?
Interested in reading even more about this book? Keep reading below. I included a few more notes.

Rat race
We are all running in the rat race. What is the rat race? It sounds like a terrible, unending event:
If you live paycheck to paycheck, spending everything you make, what you’re really doing is running an unwinnable race... Go to work… earn money… spend money… go to work… Endless treadmill… people bust their butts 40-50 hours or more… wind up with almost nothing to show for it because at the end of the month their paycheck is always spent... It’s an unfair, vicious cycle, and you don’t want to fall into it.

So how can you avoid this? The trick is that you have to avoid debt and pay yourself first. If you don't set aside money for yourself, you will never start getting ahead. Now is a good time to start.
Chances are you are earning more than you were ten years ago. But are you saving more? Are you getting ahead or running harder just to stay even? Is your income helping you become more free or less free?

The good news is that it’s not how much you earn, but how much you keep.
Regardless of the size of your paycheck, you probably already make enough money to become rich.

Pay yourself first
This is all great but how much should you be setting aside to invest? This book recommends paying yourself first at least 10% of your income. If you work 8 hours a day, this comes out to roughly 1 hour worth of pay (if it is invested before taxes). You would be paying yourself first 1 hour a day.

Looking for more specific advice? The author lists a series of savings rates based on where you want to end up:
  • Poor: Spend everything you make each month
  • Middle Class: 5 – 10%
  • Upper Middle Class: 10 – 15%
  • Rich: 15 – 20%
  • Rich Enough to Retire Early: 20% or more

The Latte Factor
Where will you find the money to save these amounts? The good news is that the secret to growing wealth isn’t suddenly making more money. “Ask anyone who got a raise last year if they saved more money”. The more we make, the more we spend. How much someone earns has almost no tie to how much wealth they build. The trick to getting ahead is to watch the little stuff. The spending habits you have that you would be better off without.

This book outlines how to easily track your spending to identify your small things you spend money on that don't actually add value to your life. The author calls these the "Latte Factor". After eliminating small purchases that don’t add much value to your life, you will start seeing real results. A few dollars a day can add up to some serious money over time.


No discipline needed, just automate your financial plan. Something that takes a conscious effort and self control and a decision to do every month will eventually breakdown. Take the decision out of your hands and set up an automatic system. Arrange to have things you know you should do happen automatically. No chance to forget about it or deliberately not do it. No need for a budget.

Account types
Where do you put this money? Should you use a tax-advantaged account like a 401k or an IRA? Should you use a normal brokerage account? This book discusses different investment account types and provides simple guidance for new investors.

Asset allocation
After you open your account, how will you know what to invest in? You will do this by deciding on an asset allocation. This book provides basic guidance on asset allocation based on age and stage of life. It also goes over using robo-advisors and other low cost ways to automate balancing your asset allocation.

Home ownership
Should you buy a house or rent? What makes the most sense? This book suggests that everyone should work towards home ownership. As the author puts it:
You can’t get rich renting… landlords get rich and renters stay poor... The first landlord you should become is your own... You aren’t really in the game of building wealth unless you own some real estate.
Paying rent really adds up over the years. Paying $1,500/mo for 30 years comes out to $540,000 in rent paid.

The author points out that nothing gives you freedom and security like owning a home. But the trick is to own the real estate free and clear. This book recommends debt free home ownership and provides some simple advice to help pay off a mortgage years early.

For first time home buyers, this book provides simple guidance to get started.

Debt free
To put it simply: "Automatic millionaires don’t do debt."

The author recommends to never buy on credit. No matter how big the purchase is, never use credit. Pay for it in full or don’t buy it. The only exception is a house (which, the author says, you should pay off as quickly as you can).

If you use credit card for convenience or rewards, pay them off in full each month.
Avoid debt and you will be free from the stresses of worrying about money each day.

If you read this far, you may want to pick up a copy of the book. It is available here on Amazon:

The Automatic Millionaire by David Bach

Introducing the Personal Finance Reading List

You shouldn't just take my word on any of this. I am trying to figure things out just like everyone else. Try to learn from as many sources as you can to make the best decisions you can. Hopefully, I can point you in the right direction by sharing some of the Investing and Personal Finance books that I really enjoyed. There are also links to some really good blogs too.

Check out the reading list page here

Friday, January 4, 2019

What is this blog about?

I started this blog to collect my thoughts on personal finance and investing as I learn as much as I can. I hope that this will be a reference for friends and family. I hope you will find it useful as well.

The goal of this blog is to help people take the first few steps towards Financial Freedom. This is done through saving, eliminating debt, and investing. Building a habit and taking the first few steps are the hardest part.

Financial Freedom can mean many things for different people because it is about achieving the goals you set in life. It could mean having the money to do the things you enjoy, building up your net worth, freedom from debt, having a financial plan that provides income even if you stop working, or many other things. The main goal is increasing your freedom and simplifying your life. You can do what you want to do, live where you want to live, and work only when you want to.

There will be several posts discussing basic investing topics and a few beginners step-by-step guides to investing. As the site evolves, I hope it will become a good reference for both beginners and experienced investors.

Help me provide valuable information by leaving comments and questions on my posts.

Simplicity and Freedom launched

We launched today as Simplicity and Freedom. Hopefully, this doesn't create any confusion. We think this domain name will match the content on this site much closer.

Tuesday, January 1, 2019


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