Jim and Sue McIntyre, (Bach’s real life example of what it means to be “Automatic Millionaires”), are regular Canadians – suburban lifestyle, a couple kids, and a household income of just under $60,000 a year. And yet, at the age of 52, Jim was retiring… with a net worth of close to Two Million Dollars. So how’d he do it?
The Big Idea
Why Budgets Don’t Work
In The Automatic Millionaire, David Bach follows the classic “help book” structure by offering a list of steps that, when followed, promise to lead you to a future of riches. The difference between his book and others? Bach’s “step program” has exactly one step. Granted, he uses 200 pages to fully articulate that one step, but it is truly a single concept that is literally guaranteed (yes, I know that’s a dangerous word) to make any working-Joe a millionaire. So what is that step? We’ve already told you – Automatic. While covering topics of retirement savings, debt repayment, “rainy day” funds and home purchasing, Bach’s one message remains abundantly clear – make it automatic. In other words, take the control out of your own hands and put all your good intentions on automated payment schedules. With the beautiful gadget we call the internet, we as a society have never been in a better position to automate our way to millions. So how does that work?
Insight #1
I fought the law, but…
Little fact I wasn’t aware of – until about halfway through the 20th century, the Canadian government did not tax regular bi-weekly pay cheques. (My apologies to our American friends – I happened to pick up the Canadian Edition of The Automatic Millionaire. Thankfully, the lessons from the book are universal.) Instead, the government would rely on citizens to submit their owing income tax at the end of the year. Funny thing though – by the end of the year, nobody had any money left!
It turns out very few people have the ability to save any significant amount of money over any specified amount of time. It all comes down to that dreaded word –“budget”. Just like diets, everyone tries them from time to time, but the rare exception actually last. So with that in mind, the government made a very smart decision – they would get their portion of your money before you even touched it. So here’s the most brilliant concept in The Automatic Millionaire: Pay Yourself First. Legally, ethically, pay yourself before you pay the government. The Automatic Millionaire has a whole chapter on how to do just that (pgs 57-77), so I’d encourage you to buy the book, as well as potentially Bach’s Finish Rich Workbook. Effectively though, it becomes a matter of making regular pre-tax RRSP contributions through your payroll department. I know how sexy that last sentence sounds, but I promise you – this is a good idea, and worth looking into, should you not be taking advantage of this already.
Did you know that $20,000 invested by the age of 19 will be worth over $1,600,000 by the time you’re 65?
You may not be 19 anymore, but as the Japanese say – while the best time plant a tree was 100 years ago, the second best time is now.
Insight #2
Are we just Weak Willed?
Why is it that most of us find it so difficult, if not impossible to keep to a budget? How come so many diets and exercise regiments fail? Are we really just weak willed? Yes.
Just kidding. The answer is really two-fold. The first is really a matter of human nature. As Bach puts it,
“Any system that is designed to control your normal human impulses is ultimately bound to fail. That’s because humans don’t want to be controlled. We want to be in control. ”
David Bach, The Automatic Millionaire, page 60
Paying Yourself First is a way of putting aside the money you want for yourself, while not having to curb your natural impulses to spend. Most people will agree, money just goes. Personally, I’ve always found it truly amazing – the months there’s more coming in are the months there seem to be that many more things to spend it on. (Things that I’m often able to convince myself are actually essential expenses). So instead of forcing yourself to try to save something each month that you then have to manually put away, take ten minutes to create a system that puts it away for you, before you even see it. Believe it or not, you learn to live with a little bit less very quickly.
The second reason budgets fail – we’re time starved. Believing that you will find and then set aside the time from your busy life to manually move your savings each month into a long term account is, from my experience, painfully optimistic. No matter how strong your intentions are, why challenge yourself like that when automating the process is so easy? You can set up a forced savings program through your bank (and in some cases even on-line). I’ll even take Bach’s suggestions one step further though, and encourage you to get a professional to do the automating for you. There are some fantastic financial planners and advisors out there that can walk you through the process and get you set up. And many will do it at no cost to you. Talk to the local branch of your bank, or look online for financial planners in your area. For those in Ontario, I’ve been working with a gentleman named Ryan Cox who I’d recommend as a great reference in the field. Energetic and dedicated, Ryan is a shining example of the type of professional that will work with you and make the process fun. After all, life’s too short to spend it with serious people. Professional, yes. Serious I can do without. (For those interested, you can find Ryan’s contact info at the end of this article.)
So no, we’re not necessarily weak willed – we’re just creatures of habit.
The Automatic Millionaire is, in a word, simple. The ideas David Bach shares are not new, they’re simply re-explained in a way that sheds light on the ease of creating wealth – regardless of age or income. Full of great exercises and countless website suggestions, The Automatic Millionaire is as much a work book as it is a guide to creating a life of prosperity. The overwhelming message though, is that regardless of your current situation, the time to start is now. You’ve got to love compound interest.
