“The Automatic Millionaire” by David Bach is a refreshing, easy-to-read primer on the author’s three point plan for achieving wealth: 1) Pay yourself first in tax-free income. 2) Make it automatic. 3) Become a home owner.
That’s the entire plan. Sign up for an IRA or 401K so you’re paying yourself first before any taxes are deducted and then let that money help grow your wealth with compound interest. Make the process automatic so you never have to think about it. Stop renting and start owning. Once those three steps are done, all that’s left is to do is sit back, relax, and become a millionaire.
The beauty of Bach’s plan lies in its simplicity and the knowledge that anyone – and, yes, he means anyone – can become a millionaire regardless of how much they earn. As Bach explains it, it’s not how much one earns, but how much one spends that determines their financial future.
How much should a person pay them-self first? It depends on their goal. Bach includes a chart that breaks it down thusly:
If you wish to be…
Dead Broke: Don’t pay yourself first.
Poor: Think about paying yourself first, but don’t actually do it.
Middle Class: Pay yourself first 5-10% of your gross income.
Upper Middle Class: Pay yourself first 10-15% of your gross income.
Rich: Pay yourself first 15-20% of your gross income.
Rich Enough to Retire Early: Pay yourself first at least 20% of your gross income.
Included in the book is the author’s “secret” plan for paying off a 30 year mortgage in only 20 years, and why you should.
Bach has a talent for explaining complex financial information in simple terms. If you want to become wealthy, at any age and regardless of income, this is the book for you. I highly recommend it.
Mike