“The Automatic Millonaire” by David Bach


I chanced upon this book  “The Automatic Millionaire” by Financial guru David Bach more than ten years ago in a public library near my formal home. This is the one of the first few financial books that I came across and that was also the period of time when I started to get more serious about managing my own finances. I started to visit the public library more often and managed to read quite a lot on personal finance. Recently, i watched some of David Bach’s videos and reflected on my financial journey so far. Thus, I decided to work on this post.

I think this book is the main catalyst towards my financial journey which advocates paying yourself first and automating your investment. David Bach personally think that people in the modern world lacks financial literacy which is the main cause of financial stress that everyone is facing on a daily basis. He is also the one who first talked about the “Latte Factor” which is really an eye opener to me towards saving money which led me to posting about this metaphor previously on compounded expenses.

He talks about three important rules namely, paying yourself first, save one hour of your income per working day and automate your investments. Like for example, the first hour of your work day should go towards paying yourself first (like savings and investments) and the rest of the hours would go mainly to your taxes, mortgage, transportation and all other expenses. Typically , we work almost 2000 hours per year or 80000 (40 years) – 90000 hours (45 years) during our lifetime. But the question is, how many hours do we get to keep for ourselves during our lifetime?


According to Rule number 1 and 2- we pay ourselves first by saving 1 hour of every working day (8 hours). Which means in one year you save 1/8 x 2000 hours = 250 hours.

This is equivalent to $6,250 saved every year if your hourly rate is $25 (you could refer to my previous post to have a new perspective on your real hourly wage)

Yearly investment amount = $6,250

Investment time horizon = 40 years

Annual returns = 6%

At the end of 40 years, you should have accumulated slightly more than $ 1 million by using the power of compounding. That is to say if you are a earner with median monthly income in Singapore which is around SGD$50,000 (USD35,000) per annum throughout your lifetime, you should have a very good chance to become a millionaire at a retirement age of 65 years old (if you started work at the age of 25). That sounds easy right?

But you really need a lot of discipline to emulate this formula which is why the last rule on automating your investment kicks in. As most of us lacks the discipline in investing, David Bach advocates that you should automate your investments by investing regularly in a low cost index fund using RSP (aka regular saving plan) which also takes away the guesswork of timing the market. So that is to say your monthly investing funds should be automatically deducted from your bank account monthly even before you start to pay your bills or spend. This forces us to invest in a discipline manner and over time, we will be able to see the marvel of compound interest working for us.

He also interviewed several self made millionaire who are average income earners and lives in modest homes but yet they managed to comfortably retire at an average age of 50 years old. They look like ordinary people from their appearance and you couldn’t really tell that they are millionaire at all. One of the millionaire household never earn more than USD 50,000 (total household income) throughout their careers and yet they are able to retire at the age of 51. At the point of their retirement, they have two fully paid up two properties and cars with an investment portfolio of slightly more than USD 1 million (mainly in index funds, stocks and bonds). They are generally hardworking,  frugal and are very discipline towards saving and investing their money. They are also very practical people who doesn’t flaunt their wealth.

So David Bach is saying that anyone could become a millionaire even though you only have a below average or average kind of income throughout your lifetime. If you are very discipline and efficient with your money, there is a good chance you might become financially free.

With a minimalist lifestyle coupled with a high savings rate, people should be able to attain financial independence / retire much earlier than others who are still trap in the endless pursuit of “happiness”. I hope that by being more efficient with money and learning how to live with less, we could curb this consumerism madness and attain financial stability .

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