The Automatic Millionaire by David Bach - Chapter 2 - The Latte Factor

Chapter 2 of The Automatic Millionaire is subtitled, “Becoming an Automatic Millionaire on Just a Few Dollars a Day.” According to the author the trick to getting ahead financially is “watching the small stuff — little spending habits you have that you’d probably be better off without.” We spend money because we have it. If we get extra money we do not save it. The proof that we do not save extra money is that anytime the government wants to jump start the economy they talk about cutting taxes - the government knows we will spend the extra money and rather than save it.

In this chapter Bach introduces The Latte Factor and as he quotes People magazine, “A latte spurned is a fortune earned.” If you can quit wasting your money on frivolous spending and invest it instead then you can get your money to work for you, instead of you working for money. He saying “It is not how much you earn but how much you spend” is just a twist on the more common “It is not how much you earn but how much you keep.”

The author contends we all have things we waste our money on each day. These things add up. Over a month they are big money, Over a year even more. Over a lifetime at compound interest — possibly a million dollars. Yes! Saving 5 dollars a day for 40 years adds up to over a million dollars! Before reading this book I have already searched for my “Latte Factor”. I was spending $2.00 a day on Diet Coke and another $2.00 a day for lunch. (Yea, I am cheap). But still, this is $20.00 a week that I have found I can eliminate, thus saving over $80.00 a month.

He then goes on to show how compound interest can work for you. There is a chart showing how a 15-year-old only has to save $3,000 for 5 years in order to have $1.6 million at age 65. A 19-year-old has to save for 8 years, and a 27 year old would have to save $3,000 a year until they were 65 and still only have $1.3 million.

The first chapter stated that the reader could become an automatic millionaire without any discipline or will power. Changing your lifestyle will take quite a bit of discipline and will power — even though the results will definitely be worth the effort.