The Automatic Millionaire by David Bach - Chapter 4 - Now Make It Automatic

Now Make It Automatic is the 4th and longest chapter of The Automatic Millionaire. The author’s obvious emphasis in this chapter is that “you need to have a system that doesn’t depend on you following a budget or being disciplined.” No matter how little you think you can set aside each month, even if it is just 1% of your income, set it up so that you do not have to write a check but instead have it auto deducted from your paycheck or your bank account.

Bach’s first insist that you sign up for whatever retirement account is available to you at work. These plans are almost always pre-tax so that any amount you contribute is not counted as income for your taxes.

If you don’t have a retirement plan at work, you need to open an IRA. The author makes some suggestions to help determine whether it should be a Roth IRA or a traditional IRA. Then, as the title of this chapter makes clear, he shows you how to make the contributions to your IRA automatic

If you are self-employed you have the advantage of being able to put away more money than most. Bach suggests opening a SEP IRA or a One-Person 401(k).

Whatever plan you are able to open, you need to contribute as much as possible. Most people do not and retire poor. This decision will do more than any thing else in your life to determine whether or not you will become rich. This is because:

Over time, money compounds.
Over a lot of time, money compounds dramatically!

Then Bach gives some advice on how to invest your retirement contributions. He shows his Automatic Millionaire Investment Pyramids that divide the your investments between Aggressive Growth, Growth, Growth & Income, Bonds, and Cash. The percentages you place in each is dependent on your age. He also recommends some of the “Balanced Mutual Funds” which really surprises me. Most of these funds have the highest fees because rather than investing directly in stocks, bonds, etc, they buy mutual funds. So not only to you have the management fee for your “Balanced Fund” but also the management fee for the underlying mutual fund.

He closes out the chapter with a list of sites that can help you learn more about your investment choices and a reminder:

Whatever type of account you open, arrange to have your contributions automatically transferred into it, either through payroll deduction at work or an automatic investment plan run by the bank or brokerage firm where you’ve set up your retirement account.