My Thoughts on “The Automatic Millionaire”

Hello, everyone!  I am finally back into my routine after being down for the count for several days thanks to my wisdom teeth removal surgery.  Let me tell you, that recovery was ROUGH.  I now understand why everyone dreads that surgery.  One of my teeth was pretty badly impacted, so even my prescription opioid didn’t relieve the pain at times.  I am so glad to be on the mend and back to work.  Once my insurance company processes my oral surgeon’s bill, I will write a blog post on what my final costs ended up being.  I saved up $2,300 based on my oral surgeon’s original estimate, but if I’m reading my bill correctly, it ended up being less than that amount.  Hopefully my insurance will pay for a chunk as well (it’s an out-of-network provider because he’s the only oral surgeon in the town I live in and the nearest in-network provider is a 3 hour drive from here…no thank you).

Unrelated to this post, I wanted to give a quick shoutout to my boyfriend, Mike.  He just paid off the auto loan on his pickup!  His original loan was for approximately $10,000 with an estimated payoff date of March 2020.  He paid over $5,000 towards the loan in six months.  He’s made great strides in saving and investing over the past year (he even opened up a Roth IRA and a high-yield savings account for his emergency fund; I’m so proud).  I’m still a little bitter that his employer contribution to his state retirement is 8% compared to my 6% since he’s in law enforcement, so I don’t want to toot his horn too much. 😉

As you may have read on one of my previous posts, in 2018 I set a goal for myself to read 50 books by the end of the year.  I ended up with a total of 72, which was pretty awesome.  They spanned many genres and I tried to do a good mix of fiction and non-fiction.  One of the more recent non-fiction books I finished was “The Automatic Millionaire” by David Bach.  It was published in 2005 but its teachings still ring true today.  He talks a lot about “The Latte Factor.”  This could be taken literally, but it can be applied to any little habit you may have of spending money during the day.  For example, if you invested $10 every day in an investment account that yields an average of a 10% return rather than buying your daily latte and bagel, you’d have $2 million dollars after 40 years.  Here’s what I learned.

  1. Pay yourself first.  This is SO IMPORTANT.  If we let our money rule itself throughout the month and then only save what we have left over, we likely won’t end up with much because things happen.  It is critical to set aside a portion of our income first, before any of the other expenses roll in.  No matter how small this amount, every little bit counts.  Pretax retirement accounts are great for this, especially if your employer will match a portion of your contributions.  If you aren’t taking advantage of this, you’re turning away free money!
  2. Make your savings automatic with pretax dollars.  Automating takes the potential for forgetting or a lack of willpower out of the equation.  You won’t even see the money in your account so you won’t miss it or spend it before you can manually transfer it to a savings or investment account.  I’m thankful my employer (state government) automates a 6% retirement deduction from our paychecks, and they also match it with a 6% contribution of their own.  I believe our contribution is mandatory and we can’t reduce or remove it.  Good thing my employer was looking out for me way back when my ignorant, 22-year-old self first started working my big girl job. 🙂 I also automate a $100 transfer to my savings account twice per month and a $50 contribution to my Roth IRA twice per month.
  3. Buy a home and pay it off early.  This is one area that I don’t agree with entirely.  I bought a home two years ago and locked in a pretty low interest rate (3.75%).  Right now I am only making the minimum payment and I try to avoid looking at the breakdown of how much of my payment goes to interest every month, because it makes me mad.  This year I will become entirely debt free with the exception of this mortgage.  I have set a goal for myself to make one extra house payment this year and ensure it all applies to the principle balance.  Aside from that, I have no plans to aggressively pay down my mortgage.  Why?  Because I think I could put my money to work in a more savvy way.  First, I want to build up my emergency savings fund to ensure I have a minimum of six months’ worth of expenses in case of emergency.  Next, I want to max out my Roth IRA contributions even if that averages only a conservative 8% return on investment over 30 years.  Enjoying my life currently through traveling is also important to me, and I want to be able to continue that as it’s a higher priority than being mortgage-free.  I also don’t think buying is better than renting for everyone.  If you don’t intend to live in your home for more than a year or two, buying likely won’t be beneficial to you.  Buying also involves a ton of hidden costs, such as maintenance, lawn care, snow removal, etc.  Quite frankly, these expenses suck.  I’ve paid $1000 for a new water heater, $150 for a lawn mower, and $400 for a snowblower since buying my house.  If you’re not willing or able to handle these maintenance tasks yourself, paying someone else to do them can add up quickly.  In that case, renting and having a landlord be responsible for all of the maintenance would be best.

Have you read “The Automatic Millionaire”?  If so, what are your thoughts?  What other personal finance books would you recommend to me?

Talk to you next week!

~Autumn

6 thoughts on “My Thoughts on “The Automatic Millionaire”

  1. Yep, this is one I re-read every few years, and it spurred my blog post about the Latte Factor in my own budget. I’ve never had coffee in my life, but I found lots of latte factor in my spending, and it kicked my butt into gear to cut cable (finalllllllly)

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    1. I remember your post about this book, too! When you truly take a good look at your budget, there are so many ways you can curb expenses. I seriously wonder where all of my money went in the years before I had a budget.

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      1. I don’t want to even think about my first 5 years out of college. Made decent money, barely dented my student loan balance, bought tons of electronics and DVDs, barely had any money to stave off my extended unemployment/underemployment, AND I saved almost nothing for retirement. Now I do that in spades, and have plenty left over… It’s a whole lifestyle shift

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  2. I agree paying down your mortgage shouldn’t be a priority because mortgage interest is tax deductible and is a low rate. You can make money owning real estate but it depends on location, population growth and affordability. For me the extra maintenance costs are worth it compared to having noisy neighbors and smelly food in an apartment.

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