Put Your Finances On Automatic Pilot
 

Are you having difficulty-finding money to save?  If so, you might want to consider some of the ideas described by financial author, David Bach, in his book, The Automatic Millionaire. The basic premise of the book is that you only need to take action- once- to automate various aspects of your finances, such as savings and investment deposits and mortgage principal pre-payments.  Then the system works for you without the need for continuous thought and discipline.
 

The book begins with a lively exchange between Bach and a prosperous 50-ish couple.  The wife had attended one of his Smart Women Finish Rich seminars (the title of one of Bach’s other books).  The couple describes how they practiced many of the principles that Bach taught his students. 

 

Virtually ever major financial decision the couple made was automated: from the 10% of their paychecks placed in retirement savings plans to mutual fund “automatic investment plan” deposits to an automated bi-weekly mortgage principal prepayment system that Bach says can save an average homeowner $100,000 or more in interest.  The key to their success, the couple explained, was “to set yourself up for success.”
 
A frequently used term in The Automatic Millionaire is “The Latte Factor,” a trademarked phrase that uses fancy $4 coffees as a metaphor for all types of frivolous, discretionary spending.  In Chapter Two of the book, Bach describes a former student, Kim, with a $5 a day double nonfat latte and nonfat muffin habit.  Figuring a 10% annual return on this money, if it were invested instead in a 401(k) with a 50% employer match, Kim could have about $1.7 million at age 65 (she was 23).
 
The remainder of The Automatic Millionaire describes specific ways to automate your finances.  Bach describes the “pay yourself first” principle and advises readers to save the equivalent of one hour’s worth of income each day.  Another good benchmark to shoot for is saving between 10% and 15% of your gross income annually.  The book also describes how to make investment deposits automatic, including funding a retirement plan at work and “maxing it out,” if possible, and automating brokerage firm deposits for either an individual retirement account (IRA), or taxable accounts, or both.
 
The Automatic Millionaire suggests automating an emergency fund of at least 3 months expenses.  Bach also advises automation for purchasing U.S. savings bonds, either EE bonds or inflation-adjusted I bonds and accelerating consumer debt (e.g., loans and credit cards) repayment to free up money to save and invest.
 
Many financial planning and investment books describe automated money management strategies.  The Automatic Millionaire pulls all of these ideas together in one publication.  According to Bach, if a financial plan is not automatic, it will most likely fail.  Most people are simply too undisciplined, or too busy, or both, to routinely tend to all of the above-mentioned financial tasks every day, week, or month.  Further information about automating financial planning tasks can be found on the author’s Web site www.finishrich.com/automaticmillionaire.