David Bach, a money coach has written the book – ‘The Automatic Millionaire’. The book focuses on how to get rich slowly but surely and retire rich.

The book focuses on these major concepts  –

  • Pay yourself
  • You can create wealth by being mindful of unnecessary expenses
  • Utilize your money such that it works for you automatically

David Back introduces the concept – ‘Latte factor’. He says, “A latte spurned is a fortune earned”. This concept tells us how we can avoid small but unnecessary expenses such as buying a cup of latte or a pack of cigarettes everyday. We can accumulate that money and invest it.

We should learn to budget. In the budget, we should first allocate a sum to ourselves and invest this amount. It need not be a big sum. He says “The first hour of every day that you work should be going to you.” Calculate your pay for one hour per day and keep that money aside for yourself to invest. This way, you do not require a huge amount of money. Additionally, as your income grows, you will pay yourself more which means you will invest more.

To be financially independent, the investment should happen automatically and regularly. For example you can start an SIP plan in a mutual fund. The earlier you invest, the more returns you will derive. You will benefit from the power of compounding as your initial investment earns interest and then this interest also starts earning interest as it gets reinvested. You should have a retirement plan in place.

He says that we have to be ready for a rainy day. Set aside some funds (usually 3-6 months of your income) for unexpected scenarios such as loss of job or illness. Such emergencies take take a physical and emotional toll. It will be a relief to have the financial aspects sorted. It can be invested in a liquid mutual fund or kept in the savings bank account. It will earn some money and can be withdrawn easily.

Real estate (your own home) is a sound investment. He says, “If you are serious about finishing rich, you will eventually need to own some property.”

By taking a loan, you leverage money. You are forced to be disciplined because of EMIs; you can get tax deductions and you build an asset.

Aim to have a debt-free life. It is easy to splurge by using credit cards or taking personal loans. But they lead to impulse purchases and the high interest payments eat away your wealth. It is best to avoid credit card debts and personal loans. If you do use credit cards, automate the payment to be made. If you have a lot of debt, pay off the debt with higher interest payments first. You will lose less money.

Money is important but there is more to life than money. There are other factors that contribute to making you truly rich. Giving back to the community brings a feeling of appreciation and compassion. Healthy relationships make you happy. A calm mind, a balanced lifestyle and spending time on activities that you like will help you lead a more fulfilling life.

The book has a lot of information that might seem repetitive or simple. But it is a simple and quick read. Though there are examples that are more suited to financial planning in the United States, it does have useful advice for beginners to personal finance planning.

Vidya Kumar

Dilzer Consultants Pvt Ltd