Book Review - The Automatic Millionaire

I just finished reading The Automatic Millionaire by David Bach. The premise is that you if you automate your payments to various accounts and funds, you will become a debt-free millionaire.

The goal is to have a minimum of 10% of your gross income removed from the paycheck before it hits the checking account through the direct deposit at work. Whether it is all put into a 401K/403B/IRA/ROTH IRA account or split between retirement, emergency account and debt is up to one's own financial picture.

According to Mr. Bach, the way to make this work is to have direct deposit of your paycheck from work and have your checking account set up for automatic electronic payments. Since you have direct deposit, through payroll you can arrange to have certain amounts directed to various accounts. These include your organization's 401K/403B, another savings account or a money market account. The money comes out of your paycheck automatically and requires no effort you your part to make sure it gets deposited. If you do not have a 401K/403B available to you, then automatic payments to an IRA or ROTH IRA should be set up with your bank.

If needed, you should divide your 10% between the building of an emergency fund of three months of living expenses and paying down your credit card debt, paying the card with the lowest balance first.

The major key to Bach's Millionaire plan is to purchase a home and to make double payments each month towards the mortgage. This will allow you to pay off the 30 year mortgage in just over 20 years saving thousands in interest.

For more information on becoming an Automatic Millionaire, visit http://www.finishrich.com/.

All this sounds good in theory but one of the other tenants of the book is that you don't need a budget. To my way of thinking that concept may be OK if you are already well versed in your financial situation and have already made the commitment to become debt-free.

The problem comes if you are just starting on the road to becoming financially secure or have just come to the conclusion that your current financial status is not quite what you had hoped. That may call for a more basic assessment of your financial picture which would include tracking all spending for three months to get a good strong handle on where your money is going, writing down each debt with its interest rate, balance and minimum payment as well as all income from all sources. Until you have that information and have gotten a handle on your spending, this may not be the book for you.

In the upcoming months, I will continue to read and review various finance books that address different levels of financial savvy.

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