Book review: The Automatic Millionaire

Just finished reading this quick and very practical read last week, and despite the “scammy-sounding” title I still thought this one was worth sharing on the blog with you!

Can you imagine yourself in that beach chair?

Take a look at it, the title and the cover of the book are great eye-catchers, aren’t they? Who would not want to lie in this beach chair while your money is growing automatically?

In addition, David Bach, the author, is famous in the personal finance space for coining the term “the Latte Factor”, which is also a reason why I wanted to read the book (more on this below).

The book is not a “fast lane” guide to riches, it really is what it says it is: a plan to put your money to work automatically and let it get to grow to millions. How does that sound to you? Good?…or still kind of scammy? I hear you Helena, but trust me it is not, this book contains simple and fantastic advice which I have actually already touched upon in this previous post.

So what is this “secret” advice and how can I make my money grow automatically, Mr. Joney?

Pay Yourself First

If you have read the one Financial lifehack you need to start applying today, you already know what I am talking about (and you can skip the 100 first pages of the book). If not, here it is as explained in the book. What David Bach is hammering on and on throughout the book is that as soon as you get paid you should redistribute a percentage of your monthly income to a retirement or investment account. He further insists on making this process automatic. The idea is that if we had to make the money transfer (or write the check) ourselves, we would probably follow through for a few months and then most likely just drop this sound habit altogether. By automating it, the money (which we never saw in the first place) is growing in the background and will be our safe nest egg for the future.

The Latte Factor

In chapter 2 of the book, Bach is telling the story of Kim (23 years old) who mentions during one of his presentations that it is hard to save as much as 10 dollars per day. She claims it is simply unrealistic for her. Bach then challenges her to itemize all of her expenses on a daily basis. It all starts before work where she orders a Latte at her local coffee shop with a muffin (5 dollars), then later on in the morning, she feels hungry again and goes for a juice (with a Ginkgo biloba boost) and a PowerBar (here go another 6 bucks). In short, she has spent 11 bucks before lunch and she does it mindlessly. David then goes on to show that if she reduced her daily expenses by 5 dollars and put those in a retirement plan returning 10% per year, these 5 dollars per day could grow into 1,2 million dollars by the time she turns 65. He adds up a conservative additional company pension scheme (the US 401(k)) and this turns into roughly 1,7 million dollars! And there comes Kim´s realization: “MY LATTES ARE COSTING ME NEARLY TWO MILLION DOLLARS!“. And this, Helena, is how the Latte Factor was born.

Photo by Jon Tyson on Unsplash

The point David Bach is making is not to stop drinking your favorite hot beverage in the morning altogether but to look for the “small things” – your Latte Factor – you could easily cut back on. This could be cigarettes, the weekly magazine subscription, take-away food, Uber rides, weekly after-work drinks, bottled water,… and redirect those savings to an investment account, an extra payment on your mortgage, retirement,…

My take on the Latte Factor?

The numbers are presented as rough estimates, they are not precise and/or too optimistic (10% return is pretty high, 7% after taxes is more realistic). As a number nerd myself, I have calculated that 5 dollars saved every day (1825 dollars a year) and invested at a yearly interest rate of 7% over the course of 42 years will grow to 420 000 dollars. That is a lot of money for such a small daily amount but far less than what is presented in the book. It does however not take away the fact that by being more mindful about your “small expenses” and reinvesting the savings you will be able to stash away significant cash.

As I mentioned previously if you already pay yourself first every month, there is no need to reduce your costs further and you can literally drink as many coffees and eat as many donuts as you so wish (do it mindfully of course).

Ramit Sethi, the author of I Will Teach You To Be Rich, constantly laughs this Latte Factor away and insists on focusing on the Big Wins instead of cutting back on the “small things”. Big Wins can be negotiating your salary, finding a higher paid job, negotiating on big-ticket items such as a house,… and while you might think, “yeah, okay Ramit just wants to differentiate himself from the common advice”, let´s see if his approach makes sense.

Let us take the case of Walter, Walter is 35 years old and makes 50 000 dollars, he is living within his means but does not save money yet. He is a programming engineer passionate about all things Blockchain, performs well at work and is soon due for a promotion as head of his department. He gets a salary bump of 6000 dollars and manages to negotiate it up to 10 000 dollars. He decides to keep the same lifestyle and to put his pay increase into a retirement account that returns 7% a year. How will this extra money grow until he is 65? Well if we assume a tax of 35% and no inflation (no further salary increases), he will get an extra 6500 dollars a year to put into his retirement account. With an average rate of 7%, this will grow to 613 000 dollars by the time he is 65. Even if Walter started to save 12 years after Kim and missed 12 years of compound interest on his investment, he still managed to get a larger nest egg than Kim. In the end, he will still be almost 200 000 dollars better off than Kim without the “pain” of reducing his lifestyle.

While the Latte Factor is a great tool to visualize how your small expenses can impact your future wealth, focusing on the big wins will provide you with far better results over time.

Now Make it Automatic


The book goes on with how to redirect your money automatically to various important financial venues: Low-cost index funds, retirement plans, credit card payments, emergency fund, mortgage payments,.. and one that I appreciated as well in a book about money “automatic tithing”. Tithing is the act of giving back to others, and yes this can also be done automatically. If you are from the US, this section contains a lot of practical information on how to open a brokerage account, which companies can help you with a mortgage loan, where to find IRS-approved charities,… For us Europeans we will have to look at our local market never the less the tips given in this section still apply to us as well.

Is this book for you? Will you become an Automatic Millionaire

It is a short (I read it in a couple of hours) and very easy book to understand, the tone is easy-going and it is targeted at a large audience. It can be a great start for anyone new to personal finance or it could be a useful gift for a friend looking at getting started with their finances.

The key lesson of this book is to redirect a part of your income directly into an investment account and let your money grow in the background. Over time, you should increase your monthly contributions so your money grows even faster. This is absolutely great advice and if you have not set this up yet, I urge you to automate your finances today.

Even though it gives a powerful perspective on our long-term wealth, I am not so fond of the Latte Factor. Identifying your Latte Factor can be great if you are just starting like Kim, but personally, I´d rather focus on the “Big Wins” like Walter. Earning more is more fun than cutting back on small expenses. and this earning more is the part that I thought was missing in the book.


Can you become an Automatic Millionaire? I cannot guarantee you will become one after reading the book but if you

  • Find your Latte Factor
  • Pay yourself first every month
  • Apply the principles of this book and
  • Grow your income

You will definitely accumulate serious wealth over time.

My overall rating of the book: I had more fun reading I Will Teach You to be Rich (different tone, target audience and more to the point) than The Automatic Millionaire but I will still give the book 4 stars as it contains the right advice to help you achieve great results as well.

What about you friends? Are you automating your finances? Have you made financial progress by “cutting back on Lattes”?

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