By Tina Dressel, Indiana University

How much do you know about money management? David Bach’s “The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich” is a book that takes you through the common-sense rules of becoming rich enough to retire early. He stresses several principles throughout the book: budgeting isn’t necessary, you don’t need determination, your salary is inconsequential, and setting up your personal finances doesn’t take much time.

Saving money with the “tortoise approach” through automatic payroll deductions is the theme of Bach’s philosophy. He suggests making a semblance of a contract with yourself to have a percentage taken out of your paycheck automatically each period. This alleviates the temptation to spend the money and takes the need for willpower out of the equation of personal finance.

I do like this approach to money management, but I think that people must have some passion for their finances for them to really become millionaires. Saying you are going to always set aside the money and actually doing so are often two different things. The hardest part is holding true to your goals when the option to spend your money on something big like a fun trip to the beach or an overpriced car comes around.

Bach suggests that budgets are not the way to eliminate bad spending habits. He believes that, no matter how large or small one’s salary, their spending will remain the same percentage of their salary.People who are in high power jobs tend to have to spend more to keep up with the status quo.

The Latte Factor

Bach explains explain his theory of wasteful spending known as the “Latte Factor.”Items such as cigarettes and expensive drinks may only cost a few dollars, but when they become a subject of daily consumption, the amount spent over the long run really adds up. My spending philosophy, similar to Bach’s, is to consider the amount of time it takes you to earn the money you spend on lunch out each day and if that is truly worth the expenditure. If it is, then there is no problem with that choice, but it is important to realize the effects of your spending and what other, bigger things you could do with the money you spend on frivolous things everyday.

Getting out of debt, which can include expensive interest payments, is one of the primary suggestions Bach dwells on throughout the book. He is a big fan of accelerated mortgage payments.

In regard to an example of a Canadian couple who seem to be his inspiration, Bach shows how the couple was able to afford two houses on a modest salary: one which they had paid off and live in, and the other that they rent out and make a nice income from. Now, not everyone is able to afford multiple homes, nor would everyone want to invest in real estate as their primary investment, but this example shows that it is possible to live comfortably on even the most modest of salaries given good money management techniques.

Safe Investing

One thing that really bothers me about this book is that it is very risk-averse. It dwells on setting up accounts that are low risk and safe. This is a fine philosophy, but for people who are young and have a lot of time to take cautious risks, this book seems very guarded. Bach also presents financial planning in a simplistic way with lots of resources and details on where to find a broker and how to set up an IRA.

If you are not an amateur investor, this quick-read, somewhat repetitive book might not be worth your while. In the same regard, if you are looking for a book to help you achieve riches early on in life, this isn’t the book for you. It does not delve into methods of achieving more money through earned or unearned income in any way. There are other books that I feel pinpoint how to become a millionaire in a more well-developed way such as “The Millionaire Next Door” or “Rich Dad, Poor Dad.”

I would recommend “The Automatic Millionaire” to young people as they are entering the workforce and trying to set up their finances. For people who already know how to manage their money effectively, this book might not be on top of your reading list. But if you have a little bit of free time, I think it is worth it to flip through and give yourself a little refresher. Who knows, it may inspire you to put aside that extra few dollars a day!