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The Automatic Millionaire – Key Takeaways to Become Wealthy

Review Part I: The Automatic Millionaire – A Powerful One-Step Plan to Live and Finish Rich.

I recently received a book recommendation from @weatlhfromrentals so I dove right in. I got the book on Audible and knocked it out on my first day of traveling for work.

For this book review, I wanted to break it out into two different posts. In the first post I plan to talk about the things I agree with from the book. The second post will encompass things I didn’t agree with. Here we go with three main things from the book I completely agree with!

Automate Automate Automate!

Listening to the chapters speaking about the importance of automation was somewhat comical. This book was published in 2003. In 2003, the thought of automating things like investing and paying your bills was brand new. It was interesting hearing the author talk about different methods of automating investments. Living in the day and age of technology makes it easy to take for granted how easy things have become.

There are two key areas it is important to automate if you want to get to financial independence. The first area is in your monthly expenses. You should be setting up automatic payments for your rent, utilities, and credit card bill. This will help end any potential late payments for recurring bills. The only callout to watch out for here is ensuring you have money in your account you are withdrawing from. As long as you have money in this account, automate the payment of these bills! Make your life more simple!

Second, it is key to automate purchasing investments. For example, I am currently purchasing $1,200 every Thursday of VTSAX in my Vanguard account. I don’t question whether the market is up or down. My account will buy $1,200 every Thursday no matter what. This automation helps me not worry about or second guess things. You can think the market is set for a major correction which would keep you on the sidelines. This past year, 2019, was a great example of this. All big time investors were talking about how the market was set for a major correction. Instead of a correction, the market ended up increasing 15%+ (as of 12/20/19).

Moral of the story, automate paying your bills and investing in index funds in the stock market.

Pay Yourself First

The second thing I agree with from the book is the concept of paying yourself first. I remember the first time I read about this concept and I didn’t fully understand it. I liked an analogy the author used in the book to help explain what paying yourself first means.

At a certain point in the book the author talks about how the government takes money out of peoples paycheck. Notice when the government takes their “fair” cut. They take the money out of your paycheck prior to the money being in your bank account! Why? Because they realized this was the only way they would be able to get paid! This is exactly what paying yourself first means! Before you see the money in your bank account, it would go directly to an investment.

Let’s talk through an example to try and make it even more clear. For this example, let’s say you are a W2 employee who receives a paycheck bi-weekly on Thursdays. In this example, there are a few ways to pay yourself first. The first is by having auto deductions from your paycheck to invest in your 401k or HSA tax advantaged accounts. This would be an example of paying yourself first! Another way this can be accomplished is by setting up an automatic investment on payday. This money could would come out of your bank account on the same day of the deposit. If done properly, you would never see this money in your account!

Emergency Funds! What Not to Do!

The last thing I agree with from the book is the authors view on Emergency Funds. This discussion point isn’t around whether you agree with an Emergency Fund or not. The focus here is if you have an Emergency Fund, where it is.

Here are things you shouldn’t do with your Emergency Fund:

  1. Having it in cash stuffed under your mattress in your home!
  2. Having it in a Savings Account earning you 0.01% interest
  3. Having it in an account costing you monthly maintenance fees

Here is what you should do with your Emergency Fund:

  • Put your Emergency Fund in a High Yield Savings Account earning 1.5%+

This is something that is very simple and should end up saving and earning you money.

Key Takeaways:

  1. Automate both paying your bills and investing!
  2. Pay yourself first! Don’t let money hit your bank account.
  3. If you want to keep an Emergency Fund, keep it in a High Yield Savings Account earning you earnest exceeding 1.5%
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