The Automatic Millionaire

How automating your finances can make you become a millionaire.

The Automatic Millionaire is all about automating your personal finances so you can focus on living life. There are so many solutions through technology that after setting up, you can forget about and grow your wealth.

Let technology handle the transfers from your paycheck to savings, investment accounts, debt pay accounts, and charity, and live life worry free.

That said, here are the 3 main lessons from the automatic millionaire

Lesson 1: Pay Yourself First

Paying yourself first will enable you to become an automatic millionaire.

What does paying yourself first mean?

For many us, we pay ourselves last.

We first, pay our rent, then utilities, then grocery bill, the government through taxes, the local shisha bar we love to frequent, and the list goes on and on.

At the end of the month, whatever we have left, we might put into savings.

There has to be a better way to save right?

Pay yourself first.

In The Automatic Millionaire, paying yourself first means putting money in a traditional retirement account – saving your pre-tax income for the future.

Paying yourself first means prioritizing your savings and investments first, before anyone else gets your money.

Lesson 2: Use The Latte Factor to Save More Money

David Bach trademarked idea for building wealth is what he calls “The Latte Factor.”

The Latte Factor is all of your small daily expenses which have the potential to add up over time.

Spending RM8 on a coffee and RM7 on a bagel daily for breakfast at Starbucks is already RM15 for the day.

That’s even before lunch and dinner!

If you aren’t careful with the small expenses, you can end up spending quite a bunch of money.

Bach recommends examining your expenses, and really thinking hard about what you need.

RM15 a day can add up drastically when saved over 30 years for your retirement.

With a 10% market return, you can become a millionaire by saving RM15 a day!

Lesson 3: Use The Automatic Millionaire Blueprint

Throughout the book, Bach talks about numerous ways to build wealth and become rich over time.

At the end of The Automatic Millionaire, Bach provides us a blueprint for becoming an automatic millionaire:

Step 1: Pay yourself first automatically.

By investing 10% of your salary and income, you will increase your odds to nearly 100% of becoming a millionaire at retirement.
Bach recommends using the pre-tax option to make it easier to get 10% into savings.
In Malaysia's case, it means using an EPF as you do not get taxed on money you put into an ETF.

Step 2: Deposit your paycheck automatically.

Set up direct deposit so you never see your paycheck.

Step 3: Fund your “rainy day” emergency account automatically.

Having an emergency fund is essential.
What happens if you lose your job?
What happens if something breaks in your house?

Make sure to transfer your cash over automatically to your emergency account so you can make sure it happens.

Step 4: Fund your dream account automatically.

Similar to #3, what are you looking to do in the next 2-3 years that will require a nice cash payment?

There’s nothing wrong with spending your hard earned cash!

Step 5: Pay your credit card bills automatically.

Get out of debt! After destroying your debt, make sure to pay off your credit card each and every month.

Interest is a waste of money!

Step 6: Pay all your monthly bills automatically.

Schedule all of your utility and monthly bills automatically so you don’t forget.

Step 7: Give to charity automatically.

After growing your wealth, you have a great opportunity to give back and make a difference.
You can give back with your time or with your money.

Following these steps will get you on the path to financial freedom.

The Automatic Millionaire Recap

In this Automatic Millionaire summary, we covered 3 main lessons:

  • Lesson 1 is to pay yourself first
    It means that you put aside a set amount of money after getting each pay before you make any payments for rent, your car, or any of your entertainment
  • Lesson 2 is to use the latte factor to save money
    The latte factor is the idea of being careful with all the small expenses that you have throughout the day. Because those small expenses can actually cost you over 1 million by retirement.
    If you are the type of person who likes to drink lattes or buy coffee from coffee shops, we suggest you look into something called Arissto where you can get high quality coffee at a fraction of the price.
  • Lesson 3 is to use the automatic millionaire blueprint
    The essence of the automatic millionaire blueprint is to automate everything so that you never have to remember to do it.

Our Thoughts about The Automatic Millionaire

Although the main takeaway from The Automatic Millionaire is making sure you are staying on top of your Latte Factor, we are not a fan of that idea.

Because what we're interested in is making sure you get to live the life that you love. And if the latte in the morning is super important to you, then that needs to stay.

Instead of picking on things that will save you RM8, we rather focus on things that will save you RM1000+ such as paying less for your insurance or for your car and house.

However, if your dream is to buy your dream house, raise a family, and travel the world, then you should go through a financial roadmap session to determine what your options are.

The second takeaway is the importance of automation.

This is something we also believe that you should focus on. The less you have to think about getting yourself to live your dream life, the more likely it is you will make it happen.

Technology has allowed humans the ability to do so many things. The same is true for personal finance.

We can automate almost all of our payments, bills, and investment contributions after a one time set-up.

Spending money is harder when the money is automatically invested for you month after month.
Do yourself a favor and automate your personal finances.

You’ll be on your way to building wealth in no time.

Action Steps:

Now that you have an idea as to what The Automatic Millionaire is about, it's time to talk about your next steps.

Step 1: Decide what that life it is you want.
Take the time to think about everything you want to have, to experience and to make an impact to.

Step 2: Have a rough idea as to when you want those experiences and how much it will cost.
We are now turning your dream life into goals.
The best way to turn them into goals is to make them more real and have a timeline.

Step 3: Determine how much you need to make and invest to get those goals.
Now that you know what it is you want in life, it's time to work backwards and see how we can get you there.
You can either do this by hand and excel, or you can go through our Financial Roadmap session to make it happen.

Step 4: Automate your finances.
Now that you know how much you need to save each month, it's time to automate it so you can set it and forget it. If you want to automate your investing, we suggest trying something like stashaway or Wahed (for those who also have halal requirements for their investments).