Each Friday, The Simple Dollar reviews a personal finance book.

As I’ve written before about David Bach’s books, you really only need to read one of them. I’ve read and reviewed The Automatic Millionaire, Smart Women Finish Rich, and Smart Couples Finish Rich and I found that … well, for the most part, they were the same book.

Bach’s books focus on a handful of points (the “latte” factor, the power of automatic savings and investments, the idea that your relationships with people are key for money management) and applies them to different groups (women, couples, people with large money aspirations). Here, Bach’s focus is on middle-aged people - people who are seeing retirement age sneak up on them but haven’t really started saving for it.

So why review Start Late, Finish Rich? If it’s “another” David Bach book, why review it?

The biggest reason is that it has the potential to give some real insight into shorter-term goals. Most of the ideas presented in Bach’s other books assume that people are going to be investing for the long haul - thirty or forty years. This book tosses that assumption out the window - what about goals of ten or fifteen years? While I’m not looking at retirement in that time frame, I am looking at some other goals and I’m wondering if there’s useful advice in here for me.

More importantly, though, my father-in-law will be retiring in this time frame. I’ve talked to him a bit about financial questions and, if this book seems to make sense, I’ll be giving my copy to him and recommending that he read it.

Is it worthwile? Let’s dig in and find out.

Looking at Start Late, Finish Rich

Part One: It’s Time to Get It
Start Late, Finish Rich opens with some good ol’ fashioned motivation. Within that motivation, though, is some good ol’ fashioned truth. Bach makes two really astute points in this section:

First, it’s never too late to start saving. No matter how close you are to your goal, it’s never too late to start. I like to think of it this way. Imagine you’re going to buy a car in six months and don’t have a dime saved for it. You’re far, far better off saving $300 a month starting now and having a $1,850 (or so) down payment in six months than not saving a dime until then and getting a loan for the whole car. You reduce your debt by $1,850 and also reduce the amount of interest you’ll pay over the life of the loan. Start now, not later.

Second, the first (and biggest) step is recognizing that there’s a problem. The day you really realize you need to kick things into gear and start doing something - anything - about it is the most important day of all.

Part Two: Spend Less
In the second section, Bach offers some pretty straightforward advice on spending less and reducing debt. Unsurprisingly (for anyone who has read other Bach books), he leads off with the “latte factor” (calling it the “double latte factor”, but it’s the same idea). For those uninitiated, the “latte factor” refers to the idea that over the long haul, you can save a lot of money if you cut out very small routine expenses from your life - like a daily latte at Starbucks, for example. Using the repetitiveness of a $4 latte, if you were to buy one every weekday for a year, you would have spent $1,040 on lattes in a year. If you take that $1,040 and put it somewhere where it earns 7% a year (say, a retirement account), you’ll have just shy of $100,000 after thirty years. Obviously, not everyone overspends on lattes, but everyone does have something that they spend a little more than they should on routinely. I had a whole pile of “latte factors” before my financial meltdown… in fact, I’ll be talking about this later today.

Bach also addresses credit card debt - basically, that credit card debt will eat you alive, but it’s not because of the amount you owe. You’ll be eaten alive by the interest (and possible late fees). You do have some leverage, though - so many companies are in this business that they’re cutthroat with each other, thus it’s not too hard to talk a credit card company into reducing your interest rate to keep you as a customer.

Two other good suggestions: don’t devote all of your resources to debt elimination if you’re this late in the game, and also don’t use credit counseling services for things that you can figure out yourself (and most consumer debt situations can be figured out on your own with some time and care).

Part Three: Save More
There’s really two principles in this section.

First, make your investing and savings automatic. This is the big principle behind Bach’s book The Automatic Millionaire. Simply put, instruct your bank to directly sock some money away for you in an investment or savings account. That way, that money isn’t even there in your checking account to tempt you into spending it. I agree wholeheartedly with this idea - it’s a big part of how I manage my own money.

Second, buy a house. Even in today’s terrible housing market, this still makes a lot of sense over the long haul because you’ll wind up holding an asset rather than putting money in someone else’s pocket. My feeling is, though, that many people in Bach’s audience already do own their own home (or are close to it).

Part Four: Make More
Here, Bach argues that it’s going to be pretty tough to make up the difference if you don’t kick your income into high gear. That means either increasing your pay doing what you’re doing right now or starting a side business.

For increasing your pay, Bach basically says to take an honest evaluation of yourself as an employee and ask if you’re valuable to the organization. If you are, use the exact reasons why you’re valuable as leverage for higher pay. If you’re not, find ways to become more valuable at work - be self-motivated, waste less time, and so on.

Bach also encourages people to find a side business, and he offers up quite a few suggestions in detail. At least one of them is dated - I don’t know that too many people who are involved in real estate on the weekends that are doing really great at it right now - but many of them are solid ideas.

Part Five: Give More, Live More
Why do all of this - working harder and cutting back on the little perks of life? Bach addresses that here, and basically it’s a matter of not having to work until you drop dead. Your final years can be ones of peace both for yourself and for your children and grandchildren, instead of stressful.

This whole section reminded me of the grandmother of one of my college friends, who was still going strong at work when I was a college student. She kept working, she said, for the same reasons that she worked forty years earlier - she was working to make life better for her children. Back then, it was directly - she put a roof over their head and paid for them to go to school. Now she was working to make sure she didn’t become a burden on her children - and so that she could do some things that would make her grandchildren very happy (and thus, by extension, her children). Her reasoning was absolutely beautiful, and it almost brought tears to my eyes - I can’t even imagine how it would have felt if I were related to her.

Ask yourself why you want to finish rich, and use that for the motivation.

Buy or Don’t Buy?

It’s another David Bach book, what can I say? They’re all solidly written, but they all cover much the same material with only a minor difference in perspective. Basically, I stick to my original belief that if you’ve read one David Bach book, you’ve covered most of the material in all of his books.

If you’re over the age of forty, this is probably the one Bach book to read. He cuts the timeframe down a bit from his other books, recognizing that you’re not going to be saving for forty years - more like twenty five or thirty. The writing also recognizes that you’re probably going to need to make a bit more serious lifestyle changes than in other books, as he delves more into increasing one’s earnings.

Of course, he does rely heavily on the old Bach chestnuts of the “latte factor” and the mantra of “make it automatic.” Those things are true in pretty much every book I’ve read by him. After so many readings, I realize that these are really his core principles and he feels a need to hammer them home in every book he writes.

It’s a good book, especially if you’ve never read a David Bach book. If you’re under 40, though, there may be better choices - try reading Smart Women Finish Rich if you’re female, Smart Couples Finish Rich if you’re married or in a long term relationship, or The Automatic Millionaire if you’re under 40, male, and single.

This week, The Simple Dollar takes a look at David Bach’s The Automatic Millionaire. I enjoyed Bach’s earlier book, Smart Couples Finish Rich, but will I like this one, too? Let’s find out.

The sensational title of this book is a big eye-cather when you see it on the shelf. In fact, this book was one of the first books I read when I was in financial armageddon and I was stumbling about looking for answers - I couldn’t help but be attracted to the title of the book. I have great memories of staying up late and devouring this entire book in a single sitting, wondering to myself how this could all be so simple, yet I missed out on so much.

Basically, Bach focuses on two major concepts throughout the book. First, one should pay themselves first by automating contributions to retirement accounts and other investments before even thinking about living expenses. Once this is done, Bach uses the power of compound interest to show how even a small amount of paying yourself first can grow into, well, millions of dollars over the years.

In short, the sensational title isn’t a lie at all: this book really is a plan to become an automatic millionaire, which excited me greatly the first time I read the book. Since then, I’ve read mountains of personal finance books, and now that I’ve returned to this one, the big question I ask myself is whether it holds up in comparison to other personal finance books. Does the message contained in The Automatic Millionaire really stand up, or is it a book best left to people just starting their financial journey? Let’s find out.

Pay Yourself First

The first portion of the book focuses on the “pay yourself first” concept, which basically boils down to putting away investments for the future right off the top, before you even look at living expenses. It’s a simple concept, but one that most people either (a) don’t believe in, or (b) believe is far too difficult to try (usually because they’re “just getting by” as it is).

The truth is that the “pay yourself first” concept, even if you pay yourself only a small amount each day, simply works. Let’s say you are able to put aside ten dollars a day; that gives you $300 a month to invest. Start doing this when you’re 25 and put it in investments that earn an average of 10% a year, do you know what you’ll have on your 65th birthday? $1.66 million.

Many people think about a ten dollar bill and can’t possibly connect it to being a millionaire, but the power of compound interest makes it so, and people who can harness the power of compounding are the ones that become rich; people who don’t spend their lives scraping together two dimes to get by. Bach spends several pages focused on this concept alone.

Bach also spends time explaining how it’s not difficult, either: just make the whole thing automatic. Withdraw it automatically from your paycheck each pay period and you’ll soon find your savings building up … and up … and up. Automation is the key, though, because without automation it becomes very easy to simply not save the money and instead use it for an unnecessary living expense.

The Latte Factor

The “pay yourself first” concept presents a problem for many people, however, as their living expenses often match (or even exceed) their income.

To solve this quandary, Bach introduces something he calls the “latte factor,” and uses a lengthy story to explain the concept. Basically, the “latte factor” refers to the tiny expenditures that you make each day without scarcely thinking about it. The name, thus, refers to the daily purchase of a latte.

Here’s an example from my own life that demonstrates the latte factor quite well:

When I was first starting out in professional life, I would start off each day with a latte and a bagel, costing together about $5. I would also hit the vending machine a couple of times each day at a cost of about $2 a visit. On my way home, I often would stop for a snack of some sort, adding up to about $3, and about two days a week would stop at the bookstore, averaging $10 a visit. Little expenditures, right? In a single seven day week, that added up to $80. Over a year, that comes out to $4,160. Investing that amount each year at 10% annual return until I was sixty five came out to $1.92 million dollars.

In other words, that morning coffee and that occasional new book was stopping me from becoming a multimillionaire.

So, if you cut out the latte factor (even partially) and invest that money each month, you can wind up quite rich in the end thanks to the power of compound interest.

Obviously, there are a few minor caveats here: inflation will reduce the actual value of that $1.92 million (meaning that a dollar then won’t be worth what it is today), and you’re anticipating always being able to put that amount away every single month, no matter what. On the other hand, even with some strong inflation, two million dollars is a nice nest egg.

Make it Automatic

The remainder of the book finds Bach applying the “automatic pay yourself first” concept to various aspects of financial life: building an emergency fund, being debt-free, and buying a home. In each case, the application is nearly obvious once the concept of making it automatic is clear, so let’s focus on that.

The “automatic” portion of The Automatic Millionaire basically refers to the process of setting up an automatic deduction from your checking account each week or month into another account. For example, if you’re saving to build up an emergency fund, you might set up an automatic deduction of $75 each week into an ING Direct savings account. On the other hand, if you’re paying off a home mortgage, you might set up automatic payments to the group that holds your mortgage.

This concept is very psychologically powerful. By simply having that money go away without any effort from you, you begin to reshape your life to this new “reality” quite easily. You check your account and when you see what’s in there, it already has the money you need to pay yourself taken out, so you budget based on what you have left. Over time, this new situation becomes the “norm” for your day to day life, but that money you’re withdrawing just keeps building up for your future.

It’s a great concept, but in a few places, Bach carries it too far. In one chapter, Bach advocates setting up a situation with a mortgage handler so that you pay them every two weeks instead of monthly in order to automatically make an extra payment every year. Unfortunately, this process often costs you a little fee each time that, when added up, removes most of the benefit of doing this. Instead of doing his plan, just do the monthly automated payment, then open a savings account and automatically put 10% of a payment each month into that second savings account. At the end of the year, empty out that account and use it as an extra payment on your mortgage. Not only are you still using the “automate it” philosophy, you don’t have to pay nonsensical fees for it.

Buy or Don’t Buy?

I’ll be honest: if I had read The Automatic Millionaire before I read Smart Couples Finish Rich, my enjoyment of The Automatic Millionaire would have been much higher. Why? The Automatic Millionaire is nothing more than a flimsy rewrite of the first one.

There is very little content in The Automatic Millionaire that isn’t in Smart Couples Finish Rich. The latter book is simply a better book: there’s much more content in terms of getting your finances straight, and almost all of the concepts that I’ve talked about this week are in it.

In short, don’t buy The Automatic Millionaire; if you’re considering buying it, get Smart Couples Finish Rich instead (I’ve heard similarly good things about Smart Women Finish Rich, though I have yet to read it). The only reason I can see to buy The Automatic Millionaire is if you want a very simple and quick read, because anyone could finish this book in a couple of hours. However, in going for brevity, you’re missing out on a lot of good information.

To be sure, I’m not condemning the book’s content at all, merely expressing disappointment that it’s so derivative. Bach’s earlier book was substantially better in every way; this one is sorely lacking compared to it, containing just a subset of the material with very little new thinking.

I originally reviewed The Automatic Millionaire in five parts, which you can find here, here, here, here, and here if you would like to read the original comments.

The Automatic Millionaire is the thirteenth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

This week, The Simple Dollar takes a look at David Bach’s The Automatic Millionaire. I enjoyed Bach’s earlier book, Smart Couples Finish Rich, but will I like this one, too? Let’s find out.

I’ll be honest: if I had read The Automatic Millionaire before I read Smart Couples Finish Rich, my enjoyment of The Automatic Millionaire would have been much higher. Why? The Automatic Millionaire is nothing more than a flimsy rewrite of the first one.

There is very little content in The Automatic Millionaire that isn’t in Smart Couples Finish Rich. The latter book is simply a better book: there’s much more content in terms of getting your finances straight, and almost all of the concepts that I’ve talked about this week are in it.

In short, don’t buy The Automatic Millionaire; if you’re considering buying it, get Smart Couples Finish Rich instead (I’ve heard similarly good things about Smart Women Finish Rich, though I have yet to read it). The only reason I can see to buy The Automatic Millionaire is if you want a very simple and quick read, because anyone could finish this book in a couple of hours. However, in going for brevity, you’re missing out on a lot of good information.

To be sure, I’m not condemning the book’s content at all, merely expressing disappointment that it’s so derivative. Bach’s earlier book was substantially better in every way; this one is sorely lacking compared to it, containing just a subset of the material with very little new thinking.

The Automatic Millionaire is the thirteenth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

This week, The Simple Dollar takes a look at David Bach’s The Automatic Millionaire. I enjoyed Bach’s earlier book, Smart Couples Finish Rich, but will I like this one, too? Let’s find out.

The remainder of the book finds Bach applying the “automatic pay yourself first” concept to various aspects of financial life: building an emergency fund, being debt-free, and buying a home. In each case, the application is nearly obvious once the concept of making it automatic is clear, so let’s focus on that.

The “automatic” portion of The Automatic Millionaire basically refers to the process of setting up an automatic deduction from your checking account each week or month into another account. For example, if you’re saving to build up an emergency fund, you might set up an automatic deduction of $75 each week into an ING Direct savings account. On the other hand, if you’re paying off a home mortgage, you might set up automatic payments to the group that holds your mortgage.

This concept is very psychologically powerful. By simply having that money go away without any effort from you, you begin to reshape your life to this new “reality” quite easily. You check your account and when you see what’s in there, it already has the money you need to pay yourself taken out, so you budget based on what you have left. Over time, this new situation becomes the “norm” for your day to day life, but that money you’re withdrawing just keeps building up for your future.

It’s a great concept, but in a few places, Bach carries it too far. In one chapter, Bach advocates setting up a situation with a mortgage handler so that you pay them every two weeks instead of monthly in order to automatically make an extra payment every year. Unfortunately, this process often costs you a little fee each time that, when added up, removes most of the benefit of doing this. Instead of doing his plan, just do the monthly automated payment, then open a savings account and automatically put 10% of a payment each month into that second savings account. At the end of the year, empty out that account and use it as an extra payment on your mortgage. Not only are you still using the “automate it” philosophy, you don’t have to pay nonsensical fees for it.

Tomorrow, I’ll give a final “buy or don’t buy” recommendation for The Automatic Millionaire.

The Automatic Millionaire is the thirteenth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

This week, The Simple Dollar takes a look at David Bach’s The Automatic Millionaire. I enjoyed Bach’s earlier book, Smart Couples Finish Rich, but will I like this one, too? Let’s find out.

Yesterday, we discussed Bach’s “pay yourself first” concept, in which an individual should put money away for their future before considering any sort of living expenses. This presents a problem for many people, however, as their living expenses often match (or even exceed) their income.

To solve this quandary, Bach introduces something he calls the “latte factor,” and uses a lengthy story to explain the concept. Basically, the “latte factor” refers to the tiny expenditures that you make each day without scarcely thinking about it. The name, thus, refers to the daily purchase of a latte.

Here’s an example from my own life that demonstrates the latte factor quite well:

When I was first starting out in professional life, I would start off each day with a latte and a bagel, costing together about $5. I would also hit the vending machine a couple of times each day at a cost of about $2 a visit. On my way home, I often would stop for a snack of some sort, adding up to about $3, and about two days a week would stop at the bookstore, averaging $10 a visit. Little expenditures, right? In a single seven day week, that added up to $80. Over a year, that comes out to $4,160. Investing that amount each year at 10% annual return until I was sixty five came out to $1.92 million dollars.

In other words, that morning coffee and that occasional new book was stopping me from becoming a multimillionaire.

So, if you cut out the latte factor (even partially) and invest that money each month, you can wind up quite rich in the end thanks to the power of compound interest.

Obviously, there are a few minor caveats here: inflation will reduce the actual value of that $1.92 million (meaning that a dollar then won’t be worth what it is today), and you’re anticipating always being able to put that amount away every single month, no matter what. On the other hand, even with some strong inflation, two million dollars is a nice nest egg.

Tomorrow, we’ll look at some applications of making this automatic.

The Automatic Millionaire is the thirteenth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

This week, The Simple Dollar takes a look at David Bach’s The Automatic Millionaire. I enjoyed Bach’s earlier book, Smart Couples Finish Rich, but will I like this one, too? Let’s find out.

The first portion of the book focuses on the “pay yourself first” concept, which basically boils down to putting away investments for the future right off the top, before you even look at living expenses. It’s a simple concept, but one that most people either (a) don’t believe in, or (b) believe is far too difficult to try (usually because they’re “just getting by” as it is).

The truth is that the “pay yourself first” concept, even if you pay yourself only a small amount each day, simply works. Let’s say you are able to put aside ten dollars a day; that gives you $300 a month to invest. Start doing this when you’re 25 and put it in investments that earn an average of 10% a year, do you know what you’ll have on your 65th birthday? $1.66 million.

Many people think about a ten dollar bill and can’t possibly connect it to being a millionaire, but the power of compound interest makes it so, and people who can harness the power of compounding are the ones that become rich; people who don’t spend their lives scraping together two dimes to get by. Bach spends several pages focused on this concept alone.

Bach also spends time explaining how it’s not difficult, either: just make the whole thing automatic. Withdraw it automatically from your paycheck each pay period and you’ll soon find your savings building up … and up … and up. Automation is the key, though, because without automation it becomes very easy to simply not save the money and instead use it for an unnecessary living expense.

With regards of coming up with money out of your monthly income and expenditures to actually start doing this… we’ll discuss that tomorrow.

The Automatic Millionaire is the thirteenth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

This week, The Simple Dollar takes a look at David Bach’s The Automatic Millionaire. I enjoyed Bach’s earlier book, Smart Couples Finish Rich, but will I like this one, too? Let’s find out.

The sensational title of this book is a big eye-cather when you see it on the shelf. In fact, this book was one of the first books I read when I was in financial armageddon and I was stumbling about looking for answers - I couldn’t help but be attracted to the title of the book. I have great memories of staying up late and devouring this entire book in a single sitting, wondering to myself how this could all be so simple, yet I missed out on so much.

Basically, Bach focuses on two major concepts throughout the book. First, one should pay themselves first by automating contributions to retirement accounts and other investments before even thinking about living expenses. Once this is done, Bach uses the power of compound interest to show how even a small amount of paying yourself first can grow into, well, millions of dollars over the years.

In short, the sensational title isn’t a lie at all: this book really is a plan to become an automatic millionaire, which excited me greatly the first time I read the book. Since then, I’ve read mountains of personal finance books, and now that I’ve returned to this one, the big question I ask myself is whether it holds up in comparison to other personal finance books. Does the message contained in The Automatic Millionaire really stand up, or is it a book best left to people just starting their financial journey?

Over the next three days, I’m going to walk through the lessons of the book and then at the end of the week, I’ll deliver a “buy or don’t buy” recommendation for this one.

The Automatic Millionaire is the thirteenth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

This week, The Simple Dollar is deconstructing five top personal finance and investing pundits and asking the big questions about their track record and their message.

David Bach was the first personal finance guru that I became familiar with due to media appearances, as I saw him pop up several times on The Oprah Winfrey Show and The View during a period of time when I found myself home a lot in the mornings during my final year in college. He struck me as being quite sensible, but I largely forgot about him until I started paying more attention to my finances, at which point I picked up a few of his books to read. Did my opinion stay the same?

Background
Like many personal finance gurus, Bach started off at an investment firm - in his case, as a senior vice president at Morgan Stanley and later a partner in The Bach Group, where he managed funds for individual investors. Once The Bach Group began to see success, he began to take on media appearances and started writing books and columns, and he eventually left The Bach Group in 2001 to focus on his media career by founding FinishRich Media, which largely manages seminars, media appearances, and writing for Bach.

Of the individuals I looked at this week, only Jim Cramer and Suze Orman have anything close to David’s background in managing people’s money effectively; his background seems to clearly be the strongest among the gurus I’ve reviewed (though I’d imagine some fans of Cramer would be willing to argue the point).

Message
Bach’s message has actually changed somewhat over the years, and that’s the biggest trouble I have with him. His earlier books (for example, Smart Couples Finish Rich) are quite strong, focusing on a lot of different aspects of personal finance. Much of it was typical - save money, pay off debts, etc. - but where Bach really hooked me was his focus on the importance of interpersonal relationships in personal finance management. Bach made a very clear multidimensional picture of the realities of personal finance, yet managed to also break things down into simpler pieces that people could digest.

Then he took that simplification to a whole new level. His more recent books (like The Automatic Millionaire) abandon the well rounded nature of his earlier works and instead focus on dumbing down personal finance to a comical level. In making a strong effort to make personal finance management as easy as possible, he takes it too far: personal finance problems aren’t solved by just automatically deducting money and living by “the latte factor.”

For me, I enjoyed his earlier books, but his later books suffer greatly because he’s trying way too hard to reach a broader audience that wants it all to be very easy to do. Successful personal finance isn’t easy; it’s something that requires reflection and internal commitment. A string of simple cost-cutting measures and an automatic deduction from your paycheck are not enough to get your finances in shape, though they certainly help.

My Take
I think Bach found some success with his earlier message, but went way too far in trying to reach a wider audience, destroying his message in the process. Early on, Bach was clear that you needed to work at it and that interpersonal relationships were an integral part of the equation. You could actually turn to his books for rational advice, not just “fix the problem quick” solutions that were Band-Aids.

At some point, though, I feel like David Bach lost respect for his audience. He started to focus more on Band-Aid solutions rather than actually addressing the deeper problems, and eventually reached the point where he preached a gospel of just cutting back on expenses and automatically deducting money from your paycheck. That perspective is almost painfully one-dimensional and, even more, that message lacks the power to really change people’s lives. It’s just a quick fix to a much deeper problem, and it’s incredibly disappointing compared to his original message.

The bottom line: David Bach used to provide good financial advice, but has dumbed down his message to the point where it no longer helps people solve their financial problems.