The Automatic Millionaire was one of the first financial books I have read. David Bach is an international best seller with his books- he has multiple books that spawn off the idea of this first book (For example, Start Late Finish Rich, Smart Couples Finish Rich, The Automatic Millionaire Homeowner. The Automatic Millionaire has a simple and key message. He says that it is human nature to screw up budgets.
Budgets are no fun and they are hard to keep, he says even the most disciplined can’t keep track of budgets (I guess they are similar to diets! diets and budgets are no fun, period.) So his trick, to be an “automatic millionaire” is to Pay Yourself First. To pay yourself first, instead of paying your credit card bills, cable bills, phone bills first. And to do it automatically by setting up a pre-authorized deduction from your chequing account (or whichever account you get money deposited form work) and not think about it. For example, he recommends setting aside 10% (or 20-30% if you are able to do it) of your paycheque and putting it aside. He draws on the idea of compound interest, or assuming that you get a 10% rate of return (which is pretty idealistic currently given the market in my opinion).
He also talks about the Latte Factor in which most people spend $3.50 a day on that grande nonfat latte with soy milk- he says that basically you are spending your money before you start work. The $3.50 adds up to almost a $1000 a year. Not to mention if you add the muffin, or eat out for lunch at work…
The great thing about his suggestion is that it is so easy. It’s almost like common sense. He gives good concrete instructions, but not so solid on HOW to earn that magic 10% interest yearly. He gives good suggestions on how to be able to save money. I don’t know how you can be an automatic millionaire though, just by saving 10% of your income every paycheck.
The rest of the book basically reiterates the basic message in the beginning of the book. It’s an easy read though.
Setting up a preauthorised deduction from your bank account is actually really simple. I now do a preauthorised deduction for my RRSP TD efunds account. And a preauthorised deduction from my regular bank account into my Manulife bank high interest savings account. It’s quite nice- this way I won’t go dipping into the savings account and know that every two weeks more money goes into it. And whatever is left over is my “fun fund”. =)
Do you have a “latte factor” that you’re guilty of?
Do you try to “pay yourself first”? Do you think it is a good way to save money?