3 Easy Lessons To Become The Automatic Millionaire

In 2004, I originally read David Bach’s book, The Automatic Millionaire, after it was first released. He has since updated it to an “Anniversary Edition” in 2016.
Recently, there’s been a lot of talk in the financial blog space regarding millionaires. It seems that many people want to know two things:
  • Who they are?
  • How to become one?
If you want to learn more about why “saving the first million is the hardest,” then click on this story.
The latest book to teach us what millionaires look like is Chris Hogan’s “Everyday Millionaires.” His team studied the habits of 10,000 U.S. millionaires.
After reading his book, it seems that there’s no reason why anybody (especially doctors) shouldn’t become a millionaire working in the United States (average age was 49).
Let’s take a look at what Bach says about becoming an automatic millionaire.

Meet The Automatic Millionaire

The book starts off highlighting a blue collar family,  the McIntyres, that were the first automatic millionaires Bach met in his early 20’s.

From them, he learned what it took to retire early (in their 50’s):

  • Paying themselves first with each paycheck
  • Prepaying their mortgage

What really impressed him was the way they did it. They didn’t possess some wealth secret or hold a fancy Harvard finance degree.

They told him that will power or discipline wasn’t required.

Retiring early as millionaires was accomplished simply by making it automatic – set it and forget it!

Sounds easy. Let’s see what’s all involved…

Lesson #1 – The Latte Factor


I decided to surprise my wife at Christmas with her favorite Starbucks latte. Her order is so complicated that I had her text me exactly what I’m supposed to say when ordering:

Pumpkin spice latte, vente, no whip or something like that.

I’m not a coffee drinker so I’m not privy to the Starbucks slang.

Anyway, after ordering, they said the total was $7.00.


$7 bucks for coffee! Holy cow!

I think I’ll stick to my Sonic unsweet tea with lemon  (during happy hour of course).

Latte Money

So if someone goes to Starbucks once a day they are spending on average:

  • $7 x 30 days = $210
  • $210 x 12 months = $2520

If you add in a pack of cigarettes ($6/pk), it jumps up to:

  • $13 x 30 days = $390
  • $390 x 12 months = $4680

As you can see, it’s the little “everyday” expenses that can quickly add up. But Bach thinks this type of “Latte Money” is where funds can come from in anyone’s budget to make them a millionaire.

This is where he gets the term, “The Latte Factor” from. The idea is that if we would stop spending a few dollars a month on lattes, iced teas, cigarettes (or whatever your “latte” is) then we could retire early and rich.

Small amounts of money invested regularly and grown through the “magic” of compound interest add up to a lot of money over time.

“A latte spurned is a fortune earned.”

People magazine

Latte Example

Here’s an example from the book:

Instead of purchasing a $5 cup of coffee a day, a person could invest it and earn 10% per year.

This luxury coffee drinker would have an extra $1,885 after just one year.

  • 1 year     =  $1885
  • 2 years   =  $3,967
  • 5 years   =  $11,616
  • 10 years =  $30,727
  • 15 years =  $62,171
  • 30 years =  $339,073
  • 40 years =  $948,611

That’s a lot of coffee!

Playing Defense


Typically football fans get excited and cheer the loudest when their team scores. If you want to see some fans go crazy, come on down to a LSU football game on Saturday night!

When I used to shoot hoops (still occasionally do), I’d practice my stand still 3 pt shot and free throws religiously everyday. I wanted to get offensively better.

Most sports these days focus on playing offense. Watching a team score points is usually more fun than watching them play defense.

Bear Bryant once said, “Offense wins games…defense wins championships.”

The Latte Factor is nothing more than playing defense with your finances. How? Watching what you spend (defense) matters more than “offense” (what you earn.)

The Bottom line: The less you spend, the more that’s available to invest. That’s a concept anyone can grasp.

Find Your Latte Factor

Do you have something you routinely spend money on each day? What is it? How much do you spend a:

  • Day?
  • Month?
  • Year?

If you want to really get motivated, then do this exercise:

Write the down the amounts down you spend on your “daily latte” and you’ll be amazed at where your money is going.

If you REALLY want to accelerate this, get rid of something like cable/satelllite or even bigger…your mortgage!

You’ll be even more amazed at how quickly the magic of compound interest will begin working for you once you’re debt free with no mortgage.

You can check out David Bach’s new book conveniently called The Latte Factor: Why You Don’t Have To Be Rich To Live Rich.

Lesson #2 – Pay Yourself First

I’m one of the few people that still personally does their own payroll. I’ve heard too many horror stories about employees embezzling from other doctors/dentists which is one of the main reasons why I continue to do it.

Frankly, I really don’t mind doing it at all. Using QuickBooks on a daily basis helps me keep an updated “pulse” on the practice.

There’s two things we should NEVER delegate:

  • The checkbook
  • The marketing

Every two weeks, I run payroll for the practice. I’ve got four employees plus my wife and I. Guess who I pay first? You got it. I pay myself first ( I hope my wife doesn’t read this!).

I’ve been so used to doing this since Day 1, that I have no problem with it. I get that not everyone reading this is an employer and has the option of running a payroll.

Do the opposite

The bottom line is that most people do the exact opposite and pay others first. Turn this around and instead, base your monthly purchase decisions on, “Can I make this purchase and still continue to save my set amount?” If not, don’t buy it.

Most people do the opposite. They buy stuff and then if anything is left over, they try to save it.

What about a budget?

Bach claims that most people that attempt to budget fail because…they’re no fun. With today’s bombardment of marketing + trying to keep up with the Joneses, it’s hard to deprive yourself today for the sake of your future.

It’s the same reason why most diets don’t work. We get sick of depriving ourselves from the foods we love to eat (key lime pie :).

Instead of following a detailed budget, he suggests the easiest way to get wealthy starts with paying yourself first.

How do you pay yourself first?

The book states a good starting point is 10-15% of your income. If possible, shoot for 20+%. Delegate this money to be taken “off the top” before you can get your hands on it. Start with investing in accounts that your employer offers to match such as:

  • 401k
  • 403b
  • IRAs

Not only are these tax-deductible, but you’re also getting free money no matter what the annual return is.

Even if these types of accounts aren’t available, set up a system that automatically takes a certain percentage out of each paycheck into an index fund such at the Vanguard Total Stock Market Index Fund.

Lesson #3 – Make It Automatic

The remainder of the book applies the concept of “make it automatic” to other areas of financial life such as:

You can take the “pay yourself first” concept and apply it automatically to any or all of the above areas.

Bach wants to make your life simple. By setting up a system like this, each dollar you redirect to different accounts will never show up in your checking account. Hence, we take away the ability to spend it.

Think of it as a different type of tax. Once it’s taken out of your check, you never think twice about it again.

For example, here’s how you could allocate 20% of your income each month:

  • 5% goes towards an emergency fund until you’ve reached 6-12 months of living expenses
  • 10% goes towards paying off debt
  • 5% goes into a retirement account

Set other goals

As you start meeting goals, feel free to add other accounts and automate them as well. For instance, once you fully funded your emergency fund, you may want to start automatically funding other accounts that can be used for:

The choices are endless. We recently started funding our church weekly through automatic transfers. Once you get a few set up, it can make your financial life that much simpler.


The “Make It Automatic” concept is very psychologically powerful. It’s a great feeling to start reshaping your financial life knowing that you’ve set up a system that automatically redirects money without any additional effort from you.

When you think about, this process makes budgeting simple. Money left over in your checking account can be used for whatever needs you have.

Over time, this new situation becomes the “norm” for your day to day life, but that money you’re withdrawing keeps building up for your future.

Creature of habit

Humans are creatures of impulse and habit. Whenever something requires discipline, the easiest way to achieve it is to remove ourselves from the equation and eliminate the need for willpower altogether.


David Bach provides us a blueprint for becoming an automatic millionaire at the end of the book:

The Automatic Millionaire Blueprint

  1. Pay yourself first automatically.
    • By investing 10% of your salary and income, you will increase your odds to nearly 100% of becoming a millionaire at retirement. He recommends using the pre-tax option to make it easier to get 10% into savings.
  2. Deposit your paycheck automatically.
    • Set up direct deposit so you never see your paycheck
  3. Fund your “rainy day” emergency account automatically.
    • Having an emergency fund is essential. What happens if you lose your job? What happens if something breaks in your house? Make sure to transfer your cash over automatically to your emergency account so you can make sure it happens.
  4. Fund your dream account automatically.
    • Similar to #3, what are you looking to do in the next 2-3 years that will require a nice cash payment? Use this account to automatically fund it.
  5. Pay your credit card bills automatically.
    • If you don’t have enough money to do this monthly, switch to a debit card.
  6. Pay all your monthly bills automatically.
    • Schedule all of your utility and monthly bills automatically so you don’t forget.
  7. Give to charity automatically.
    • I once heard that “the hole you give through is the hole you receive through.” If you want to be happier, become a giver and get off the Hedonic Treadmill.

What do you think? Do you have what it takes to become an automatic millioniare?

Comment below!