The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich

The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich
Author: David Bach
Publisher: Crown Business
Published: 12/27/2005
What’s the secret to becoming a millionaire? For years people have asked David Bach, the national bestselling author of Smart Women Finish Rich, Smart Couples Finish Rich, and The Finish Rich Workbook, what’s the real secret to getting rich? What’s the one thing I need to do?

Book Summary - The Automatic Millionaire by David Bach

Key Insights

Millionaire. It’s a word that conjures images of sprawling mansions and colorful yachts. Of snow-capped French chateaus and $500 bottles of wine, table-service style. The term millionaire connotes a pipe dream for many...and reality for a select few.

We spend our lives thinking that in order to achieve this highly sought after outcome, we would need to find a cure for cancer or discover the eighth continent.

But what if there was another, simpler way?

The Automatic Millionaire looks underneath the tightly-fastened lid of wealth and examines what it really takes to achieve millionaire status through practical, deliberate steps.

Let’s say it louder now for those in the back.

Who wants to be a millionaire?

Key Points

Small Amounts Add Up

If you are one of the many Americans with an annual income hovering around $40,000 or less, you are not prohibited from becoming a millionaire.

In fact, it is entirely feasible to achieve millionaire status from meager means, so long as you are smart in your investment and budgeting strategies.

Consider Jim and Sue McIntyre. The couple relied on a key philosophy in their financial endeavors:

“You can either work for your money or make your money work for you.”

Early in their marriage, the McIntyres began saving. Initially, they were saving four percent of every paycheck, eventually increasing this to 15%. Over time, thanks to compound interest accruing, the value of the McIntyres’ funds increased exponentially.

While Jim McIntyre had never earned a salary of more than $40,00 in a single year, the couple had a net worth of two million by the time they were in their early 50s.

This concept of getting rich gradually over time has a name: the latte factor. Unless you are a Starbucks aficionado, your average latte probably costs around $3.50. Say you get one every single day--you are then looking at a total cost of more than $1,200 per year.

Let’s say you decide to start skipping the lattes and set that money aside each day, plus an additional $6.50, totaling $70 per week. This simple adjustment would leave you with more than $700,000 in 30 years' time and almost two million dollars in 40 years.

Pay Yourself First

Taxes. Rent. Insurance. Most of the time, these life expenses are unavoidable. Once we pay for each line item, we can then set the rest of our paycheck aside for spending money, right? Wrong.

Here is where we need to reverse our logic.

Rather than paying for the necessities and THEN setting aside money for personal expenses, Bach recommends paying yourself first.

This can take the form of a pre-tax retirement account. With a pre-tax retirement account, you are directly depositing money into a savings account, and, because your money will only get taxed once you withdraw it, you will likely be saving significantly. Chances are, the account will be taxed at a lower rate than the one your current income incurs.

Therefore, you will have more money now.

Let’s say you make an annual income of $50,000. If the rate of taxation is 30%, you are then left at a net income of $35,000. Then, hypothetically, you put aside the $5,000 to go towards retirement. You then have $30,000 in the end.

Or, you can approach this differently.

You can FIRST take the $5,000 out of your annual income and put it in a pre-tax retirement fund. This $5,000 will come directly from your $50,000 salary, leaving you with $45,000 to spare. Then, when you are taxed at the 30% rate, you will then have $31,500--rather than $30,000--in the end.

By simply changing the order of your financial procedures, you can save a ton of money on tax.

Emergency Fund

If the COVID-19 pandemic has taught us nothing else, it has served as a harsh reminder that there are no guarantees in life, especially in terms of job security and health crises.

So, while it is not advisable to spend all of our time scrutinizing over endless ‘what-if’ scenarios, having a simple emergency fund in place can be lifesaving (sometimes literally) in a tight situation.

Americans do not like to plan for emergencies, though. The average person in this country has three months' worth of savings saved up and nothing more. This is why you see communities reeling when the prospect of widespread unemployment emerges.

In the end, a choice must be made: how much are you willing to pay for peace of mind?

Bach recommends that with each paycheck you receive, you set aside five percent. Don’t forget, this is also on top of what you are already putting away for retirement. And make sure that you are leaving this emergency fund in the hands of a reputable financial institution rather than the tin can in your backyard.

Money market accounts are reliable and thus are often ideal for emergency funds.

Owning vs. Renting

It is an age-old debate: renting versus owning. While both options have their appeal, homeownership is by far the more financially beneficial choice.


Take a look:

Owning: You pay a monthly mortgage and by doing so, you build up equity over time. Equity can then be tapped into when you are selling your house, consolidating debts, or even planning for retirement. You can become equity-rich when you have 50% equity in your home.

Renting: You pay a monthly rent--which is often comparable to the cost of a mortgage--and you do not end up with anything to show for it. Often, the money you are paying in rent goes directly to the landlord who owns the property and you become stuck in a cycle where you have to keep renting because you are unable to make the leap to owning a home.

The benefits of owning a home rather than renting are mostly seen in the long-term, so it is important to focus on the future when you are making this life-altering decision.

And, if you do go the homeownership route, which will land you a monthly mortgage payment most likely, be sure that you are careful in determining what kind of mortgage is right for you.

For instance, when low-interest rates are common, it is the ideal time to use a fixed-rate mortgage. You can even set your plan up in such a way where you are able to make automatic bi-weekly payments through your bank.

Credit Card Debt

The average American household has approximately $8,400 in credit card debt. This will take more than 20 years to pay off if you are paying the minimum amount each month.


It all comes down to interest. Interest rates for credit cards can be as high as 18%. In the long-term, if you don’t quickly pay back what you owe, you will end up paying double what you originally spent.

For instance, if you cover $1,000 of expenses with your credit card and you pay it off only applying for minimum payments, you will ultimately end up paying a total of $2,300...more than twice what you spent.

In addition to paying off your credit card debt, you will want to renegotiate your debt as well, if you can.

If you call your credit card provider and tell them you are planning on switching to a different company, they will often offer you a lower interest to incentivize you to stay.

And, if you have debts that are spread over multiple accounts, it is also worth seeing if you can have them consolidated into one place.

A good practice for balancing your saving and spending habits is dividing your paycheck in half. The first half goes towards becoming a millionaire...and the second half goes towards paying off your debts. With this approach, you are thinking about both the future and the past.

Automatic Charity Account

As much as you are concerned about your financial well-being, it is equally important to consider the economic security of others.

In this vein, consider a donation.

Let’s return to the McIntyres, who was introduced earlier in the text. In addition to setting aside money for retirement and savings each paycheck, the McIntyres put aside one percent of their earnings for charity each time they were paid. This way, while they were growing their own empire, the McIntyres were also helping others.

Just be sure that when you are donating to charity, you are giving money to a reputable organization and you know exactly what purpose the money you are donating will serve.

An added bonus of donating is that your donation is tax-deductible!

For every dollar you give, you are actually spending less money overall once you have accounted for the taxes.

The Main Take-away

The Automatic Millionaire breaks down a seemingly daunting task: achieving the coveted status of a millionaire without winning the Nobel Prize or developing a new vaccine. Instead, Bach’s twelfth book provides a detailed examination of credit card debt, pre-tax retirement accounts, philanthropy, savings plans, the benefits of homeownership, and investing, all as tools for maximizing profit based on a few simple, fiscally-savvy decisions. You don’t have to make complicated choices to hit it rich, just economically pragmatic and intelligent ones.

About the Author

David Bach was born in Oakland, California in 1966. After receiving a Bachelor of Arts in Social Sciences and Communication from the University of Southern California in 1990, he began his career as a vice president at financial institution Morgan Stanley.

In the years since, Bach has appeared several times in the media and is a frequent contributor for a variety of television shows, including The Today Show, The Oprah Winfrey Show, Good Money, The View, and Live with Regis and Kelly.

Bach is the author of twelve books, including The Automatic Millionaire.

He now lives in Florence, Italy.


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