The Automatic Millionaire

A book recommendation

I recently finished The Automatic Millionaire, by David Bach. It’s one of the best “how to effectively save for retirement” books that I’ve read.

The book has sold over 1.5 million copies since it was published in 2004. Bach even appeared on Oprah numerous times at the height of its popularity.

In case you don’t read the book, this is the best principle I think would be useful for anyone trying to save more…

---

Pay Yourself First Automatically

If after every paycheck we have to consciously move a portion of our income from a checking account to an investing account, there’s no way we’ll do it consistently.

Ideally, at least 12.5% of our income — or one hour’s worth of work per day — would be saved for our future self.

Note: If 12.5% is too much starting out, start by saving 5%.

The first way to do this is to have a portion of each paycheck automatically deposited into a 401(k), IRA, or another investing account that automatically allocates incoming cash to the investments of our choosing. Then, after the initial setup, we never have to think about it again.

Next, fund our “rainy day” emergency account automatically with 5% of our income until there is at least 3 months’ worth of expenses in the account.

Note: I think at least 6 months’ worth of expenses is the best target for emergency savings.

After automatically depositing into those buckets, our remaining income can go toward saving for dream expenditures, paying down credit card or regular bills, or donating to charity.

The key to all of this is to automate it.

The benefit of this approach is if we don’t see that initial portion of our paycheck hit our checking account, we’re unlikely to miss it. Our spending adjusts to how much we see in our primary bank account.

Here’s the blueprint from the book in case you want a quick point of reference:

---

Thanks for reading! Hope you have a fantastic day.