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Quick Summary: The Automatic Millionaire Summary by David Bach is a get-rich-slowly-but-surely manual brimming with numerous practical pieces of money-related advice on everything from how to
“pay yourself first” 10% of your pretax income through how to make all payments automatic to pro-tips on how to buy a home and pay it off… automatically, of course!

Who Should Read “The Automatic Millionaire”? And Why?

The Automatic Millionaire is for everyone who thinks that he/she doesn’t earn enough money to retire at a younger age and for everyone who thinks that the only way to save money is to not buy a house until you have some.

It’s the perfect book for young people: if you’re 20, The Automatic Millionaire can teach you how to retire as a millionaire with a house at 55.

The Automatic Millionaire Summary

The Book at a Glance

If the title isn’t already a giveaway to you, The Automatic Millionaire is a practical guide to getting rich (and retiring early).

However, unlike other similar manuals, this one boasts a very unique philosophy, one that can be described in seven points, the first three of which startle at first glance:

#1. You don’t have to make a lot of money to be rich.
#2. You don’t need discipline.
#3. You don’t need to be “your own boss.”

Then, what do you need?

#4. Above all, you need an “automatic system” so you can’t fail.
#5. By using what the author terms as “The Latte Factor,” you can supposedly build a fortune on a few dollars a day.

Why?

Because, as Karl Marx so correctly predicted and Thomas Piketty so thoroughly proved:

#6. Homeowners get rich; renters get poor. (Yes, this is still true.)
#7. The rich get rich (and stay that way) because they pay themselves first.

But let’s delve into David Bach’s philosophy a little more.

Chapter One: Meeting the Automatic Millionaire

To start with – it’s not exactly his: as he informs us in the first chapter of his book, the original automatic millionaires are Jim and Sue McIntyre.

The author met them when they came to him looking for financial advice; it ended up being the other way around.

You see, Jim and Sue McIntyre were in their early fifties when the meeting occurred, and they were readying themselves for retirement.

Wait… what?

You haven’t heard the strangest part yet: Jim had never earned more than $40,000 a year!

Then how did he have $2 million on his bank account at 52?

Well, between working for their money and letting their money work for them, the McIntyres chose the latter.

“You know,” Jim said to David, “most people think that when they get their paycheck, the first thing they should do is pay all their bills – and then if there is anything left over, they can save a few dollars.”

“In other words, pay everyone else first and yourself last. Our parents taught us that to really get ahead of the game, you have to turn this around. Put aside a few dollars for yourself, THEN pay all your other bills.”

Originally, they started putting aside just 4 percent of their income, and they slowly raised the bar; at the time of the meeting, they were saving 15 percent.

Also, because they knew full well that homeowners are rich and renters poor, their first job was to buy a house; and to make a down payment, they gave up smoking and automatically repurposed the money for a home.

“Automatic” is the keyword here: to stay away from budgeting arguments (and put discipline out of the picture), the McIntyres set up a system which automatically distributed the funds.

Still confused?

Read ahead!

Chapter Two: The Latte Factor: Becoming an Automatic Millionaire on Just a Few Dollars a Day

The main lesson David Bach learned from the McIntyres is quite simple: “How much you earn has almost no bearing on whether or not you can and will build wealth.”

Why?

Because, more often than not, the more we earn, the more we spend.

Is there any way out?

Of course there is!

The author calls it the Latte Factor.

Even though by now it is already “an internationally recognized metaphor for how we dribble away what should be our fortunes on small things without ever really giving it much thought” – it makes sense to explain it here one more time.

Think of it this way: your average coffee shop latte costs about $3.5 which is, of course, nothing, but which, if considered as a daily cost, amounts to about $1,250 a year. If you are, like the McIntyres, a smoker as well – on average, $7 per day – that’s another $2,500 out of the yearly budget.

Now, over the past fifty years, the average prices on the stock market have gone by around 10 percent on a yearly basis.

Let’s say that instead of buying a Latte and a pack of cigarettes each day, you put those $10 aside and you invest them; at an annual return of 10%, that would result in more than $1 million dollars after 30 years!

In other words, your Lattes and your cigarettes are costing you an indescribably fabulous fortune!

Chapter Three: Learn to Pay Yourself First

David Bach has crunched the actual numbers and you know that math doesn’t lie: if you start saving merely $14 a day at 20, and you do that for 35 years straight, with a 10 percent interest rate (which is a conservative estimate), by the time you’re 55, you’ll be able to retire with a staggering fortune of $1,6 dollars.

However, the main thing you should learn here is that these $14 are a priority: you need to set them aside first and then do everything else after.

Most people are actually doing it very wrong: it doesn’t make sense to first pay your taxes, rent, and insurance and then pay yourself; David Bach says: first, do the latter, and then the former.

Here’s what that means!

$14 a day equals to about $5,000 dollars a year.

Now, if you pay yourself after paying your taxes, and you’re like Jim McIntyre, and you earn about $40,000 a year, then you’ll be setting aside $5,000 dollars out of $28,000 (at a 30% tax rate), leaving you with $22,000 to spread across 12 months.

However, if you set a pre-tax retirement fund and automate the process of “Paying Yourself First,” then this money will only be taxed when you withdraw it, at a probably lower rate than the current one.

In numbers, $40,000 (your wages) – $5,000 (retirement money) = $35,000 (taxed money).

30% out of $35,000 is 10,500, leaving you with $24,500.

And $24,500 is $2,500 more than $22,000!

Over 35 years, that’s $87,500 more!

See: it makes a lot of financial sense to set up a pre-tax retirement account!

Chapter Four: Now Make It Automatic

“Maybe you’ve heard all this before,” writes David Bach at the beginning of Chapter 4, “and you already know what not Paying Yourself First costs you. Having this knowledge hasn’t changed your life before, so why should anything be different now?”

“Well,” he goes on, “the difference is, this time you’re going to take control. This time you’re going to Make It Automatic.”

There’s no getting around it – he says: “in order for Pay Yourself First to be effective, the process has to be automatic.”

Why?

Because people are not disciplined enough to follow a certain routine over longer periods of time; and machines do exactly that: no excuses and no questions asked.

“Whatever you decide to do with the money you’re paying yourself,” concludes Bach, “you need to have a system that doesn’t depend on your following a budget or being disciplined.”

Simply put, if the money is automatically taken from you, you won’t be able to spend it.

In other (David Bach’s) words, if you want to make it work, you should:

• Make sure you’re signed up for your retirement account at work (or IRA or SEP IRA or One-Person 401(k)/Profit-Sharing Plan, depending on your situation);
• Decide how much you are going to contribute to your account each month (ideally, the maximum amount allowed).
• Decide how you want to invest your retirement contributions.
• Whatever type of account you open, arrange to have your contributions automatically transferred into it, either through payroll deduction at work or an automatic investment plan run by the bank or brokerage firm where you’ve set up your retirement account.

Chapter Five: Automate for a Rainy Day

Of course, life doesn’t always work perfectly.

In fact, quite the opposite.

Oftentimes, people lose their jobs or have to deal with health problems (both their own or their loved ones) or even devastating natural disasters.

And, as they say, even though you should help for the best, you must always be prepared for the worst.

That’s why a pre-tax retirement fund is just one part of the story; the other is, of course, an emergency fund.

According to stats, the average American has less than three months’ worth of expenses saved up for emergencies.

Simply put, that’s not enough.

In fact, far from it!

An emergency fund should amount anywhere between 6- and 18-months’ worth of wages to actually be considered some kind of financial net.

Of course, with that amount of money saved up, there’s an added – and often underestimated – bonus: quality of life.

In other words, of course you’re going to work overtime to not lose your job if you have only 3 months’ worth of savings aside! Have a year and a half, and you can say “no” when you think it is appropriate to say “no” – because, even in the worst-case scenario, you’ll certainly find a job in a few months (meaning: there will be still some money left in your emergency fund!)

So, what you should do?

Once again, automatically put aside 5 percent from every paycheck for an emergency fund; and don’t spend this money under no circumstance whatsoever – until you really, really need it!

Also, don’t keep it in a jar somewhere in your kitchen; invest it and see it grow with time.

Chapter Six: Automatic Debt-Free Homeownership

As we said above – and as Thomas Piketty demonstrated with authority – homeowners are rich; renters are poor.

The sad part?

Over their lives, renters usually pay other homeowners more than they would have paid to buy their own house!

In other words, it makes absolutely no sense to rent a house – make the decision to buy one as soon as possible.

Worried that something might go wrong?

Here’s a reassuring fact: only 2% of American homeowners are evicted for failing to pay off their mortgage!

“The secret to being an Automatic Millionaire is keeping it simple,” says David Bach. “So, here’s what you do. Find yourself that home you want and buy it.”

Next, get a 30-year mortgage and use an automatic biweekly payment plan to pay it down.

What’s a biweekly payment plan?

It’s one of the greatest financial tips you’ll ever hear: instead of making a monthly payment for your mortgage, split it down the middle and pay half every two weeks.

Now, there are 52 weeks a year, meaning, you’ll be making half-payments 26 weeks a year; that amounts to 13 monthly payments a year, i.e., you get a full year every 12 years.

In other words, you’ll pay out a 30-year mortgage about 3 years earlier at least.

And that’s not the only miracle!

The other is even better.

We’ll let David Bach explain it to you:

“Using a monthly payment plan to pay off a $250,000 30-year mortgage with an interest rate of 5 percent will cost you a total of $233,139.46 in interest charges over the life of the loan. On a biweekly basis, the same mortgage will cost you a total of just $188,722.13 in interest.”

In other words, switching to the biweekly plan will save you more than $44,000!

Chapter Seven: The Automatic Debt-Free Lifestyle

Easier said than done, right?

After all, how can you think about automatically setting aside funds for retirement or buying a house and making biweekly mortgage payments when you’re already in so much debt?

Needless to say, debt is not compatible with being a wealthy person, let alone a millionaire. As we’ve learned from The Millionaire Next Door, the rich usually don’t act rich, i.e., they don’t go in debt to buy a new Porsche.

So, if you want to be a rich person, one of the first things you should do is get rid of your debts. And like everything else – you should do it automatically!

The process consists of several steps:

#1. Stop carrying and using credit cards.

Whatever the advertisements say, they don’t exist to make you rich but to bring more money to the banks which issued them;

#2. Renegotiate your interest rates.

This is especially important since credit card’s interest rates are usually very high – sometimes as high as 18%.

What this means, in reality, is that, if you only pay minimum monthly payments, you’ll probably pay in interest just as much as you’ve originally spent!

Now, if you threaten your credit card provider that you’re unhappy with their service and you want to switch, you’ll probably get a much lower interest rate on your debt.

#3. Consolidate your debt – or if that’s not possible, start DOLPing your credit card accounts.

Now, if your debt is spread across multiple accounts, try to move it all into one – preferably the one with the lowest rate.

If that is not possible, start paying off the cards one by one, starting with the one with the lowest ratio of outstanding balance to minimum payment.

And after you’re done DOLPing your credit card accounts – cancel all of them.

#4. Pay Yourself First

Step four is a simple decision: to devote half the money you Pay Yourself First to paying off your balance.

#5 Make It Automatic

Finally, make it automatic, by arranging for your credit card company to debit that amount from your checking account each month.

Chapter Eight: Make a Difference with Automatic Tithing

“We make a living by what we earn,” said once Winston Churchill, “we make a life by what we give.”

“Becoming an Automatic Millionaire,” adds David Koch in arguably the strangest chapter of a book about becoming a millionaire ever, “is not simply about accumulating wealth. It’s also about relieving stress and worries about the future – about putting yourself in a place that enables you to enjoy life now as well as in the future.”

And a good way to make more sense of your current life is becoming a giver of money.

Yup, you’ve heard that right: Bach thinks that a part of the journey to becoming a wealthy person is deciding to give away some of your money to charity.

Automatically.

Why?

Let us list four reasons.

First of all, it will make you feel like a millionaire right away: it’s not like poor people give money to charity, right?

Secondly, you’ll hardly even notice it if you start with 1 percent of your salary; that’s basically no more than $30 if you earn $3,000 a month.

Thirdly, charitable donations are tax-deductible, which means that it’s even less than $30 in the long run.

And finally – and most importantly – giving away money will make you feel a lot better feeding you with the necessary energy and joy to live a better life on a daily basis.

And isn’t that what money is supposed to do?

Chapter Nine: The Automatic Millionaire Blueprint

The last chapter of The Automatic Millionaire is nothing more than a recap of the book, coupled with a very handy diagram you can download from here.

You already know what the steps mean, so what are you waiting for?

Start automating and retire in thirty years as a charitable, debt-free millionaire with at least one house!

Key Lessons from “The Automatic Millionaire”

1.      You Can Become a Millionaire No Matter How Much You Earn
2.      Making It Automatic in Less Than an Hour
3.      A Pro Tip: Buy a House and Pay Your Mortgage in a Biweekly Installments

You Can Become a Millionaire No Matter How Much You Earn with the Latte Factor

“In order to become an Automatic Millionaire,” writes David Bach at the beginning of his book, “you’ve got to accept the idea that regardless of the size of your paycheck, you probably already make enough money to become rich.”

In other words, it really doesn’t matter how much you earn; what matters is how much – and how smart – you save.

It’s simple math, really: if, instead of buying yourself a latte and a doughnut every day, you save and invest those $5, with an average of 10% annual return, you’ll be worth about $1,5 dollars in 40 years’ time.

Meaning, if you start this plan when you’re 20, you’ll retire as a millionaire at 60.

Making It Automatic in Less Than an Hour

The key, however, is to save money automatically: if it comes to discipline and willpower, you’ll probably fail.

It’s as simple as that.

Just follow these seven steps, and you’re guaranteed to become a millionaire by your retirement age:

#1. Pay yourself first automatically;
#2. Deposit your paycheck automatically;
#3. Fund your “rainy day” emergency account automatically;
#4. Fund your dream account automatically;
#5. Pay your credit card bills automatically;
#6. Pay all your monthly bills automatically;
#7. Give to charity automatically.

A Pro Tip: Buy a House and Pay Your Mortgage in a Biweekly Installments

Poor people pay rents; rich people own houses.

The worst part: over time, poor people end up paying for rents just enough money to buy themselves a house.

In other words: choose the house you like right away, and buy it!

Get a 30-year mortgage rate and start paying it off in biweekly instalments.

Meaning, instead of making one monthly payment, make a half-payment every two weeks.

That way, you’ll end up paying out the mortgage a few years earlier (there are 52 weeks a year, so you’ll make 26 half-payments or one monthly payment more with a biweekly payment plan) and you’ll save a lot of money on interest rates!

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The Automatic Millionaire Quotes

Final Notes

As he makes clear at the very beginning of the book, David Bach is pretty aware that most of the advices in The Automatic Millionaire are not new; however, he’s more than certain that the main one is: make it automatic.

At least theoretically, that should make all the difference: automatically paying yourself first means you don’t have to worry about willpower and self-discipline to save money, making sure that you’ll save them.And that advice alone makes this book more than worthy addition to the canon of commonsense get-rich-slowly-but-surely books floating around ever since people invented money.

Emir Zecovic

Emir is the Head of Marketing at 12min. In his spare time, he loves to meditate and play soccer.