I like this book. Many others do too. Bach explains the methods in extremely simple terms and includes several calls to action to encourage readers to start using the advice.
Condensing an already short book to a few bullets might be way oversimplifying things, but I'll try anyway. Here is what I feel are the biggest points in the book:
- Cutting out a few dollars a day in piddly expenses makes a big difference.
- Pay yourself first, then pay everyone else.
- Buy a house and pay off the mortgage quickly.
- Automate as much of the investment as you can.
The first point is Bach's Latte Factor™ — the realization that a latte a day means hundreds of thousands, if not millions, of dollars forfeited in retirement. If it's not lattes, it's something else.
The second point involves getting involved in the company retirement plan (for pretax contributions and the matching contributions), and an automatic payroll deduction or some other automated transfer to another investment account, like an IRA or another non-qualified account.
The third point prefers home ownership over renting, and paying down the mortgage faster than required by the minimum payment.
The last point, and probably the centerpiece of the book, relieves us of much of the brain power and discipline required to carry out a systematic saving plan by setting up the withdrawals and deposits to happen automatically.
I'm leaving out a lot of sub-points, but it's a very easy read.
The advice outlined will probably serve most people at least moderately well if implemented properly — and Bach assures his readers that it's within your grasp even if you don't have a huge salary. Spending less than you earn and investing the difference is all-around good advice, and whisking that money away into retirement accounts automatically makes it that much easier to not spend it.
If you've read my posts involving mortgages, you know that I'm a big fan of additional mortgage payments toward principal. If you're maxing out your retirement accounts, saving 15% or more of your gross income, have an emergency fund, and can afford to save still more, why not knock a few years off of your mortgage, too?
There are a few points that I wished would have been elaborated more:
First, Bach uses 10% as an expected rate of return for investments. I think that's optimistic for most investments today. I would have liked to see more examples with a 6% or even a 5% rate of return.
Second, he doesn't say much at all about buying a house near the top of the market. He also doesn't talk at all about interest-only mortgages or neg-am mortgages or option-ARMs (probably because they are really not good mortgages to get into). Some homeowners are actually renting now because they've sold their homes for a nice appreciation. It's not always a good time to buy real estate, and Bach seems to imply that you're not really in wealth-building mode until you own some real estate.
Third, and probably most importantly, making your investing automatic doesn't mean that your allocations are automatic, too. “Make it automatic” is a mantra in the book. There is some discussion about relative risk and asset allocation later in the book, but not nearly enough emphasis on the individual responsibility of the investor to take control of where the money is invested. The example of the original Automatic Millionaires, the McIntyres, talks at great length about their frugality and their paying themselves first and their making everything automatic, but says almost nothing about the investment choices they made along the way. The fact that their retirement turned out as well as it did indicates that they invested successfully, either (a) by luck or (b) by researching carefully what their money was doing. Now, of course, unless you lose everything in an invesment, a loss in a dollar invested is better than spending that dollar on junk. But, in order to get the 10% returns that Bach likes to use in his examples, you have to pay attention to your investments. And that part isn't automatic.
Taking the book for what it is — a reminder of common-sense wealth building techniques combined with calls to action — it's great. Follow the advice and you'll almost certainly be richer for it.
