$$$ KPO and CZM $$$: Book Review - The Automatic Millionaire

Friday, December 15, 2017

Book Review - The Automatic Millionaire

During the last weekend, CZM hijacked my laptop and was using it to work. Out of boredom, I googled for the "best finance books to read in 2017" and came across the link by Business Insider - The 25 best personal finance books to read in 2017. As I read the article, this particular book, The Automatic Millionaire by David Bach caught my eye.

As recommended by one of the readers during my last book review (Book Review - Building Wealth through REITS), we can borrow the book from the National Library Board mobile app/site and use OverDrive to read for free! You will need to sign up for a myLibrary ID with NLB first.

I enjoyed reading the book as it was interesting, easy to read and teaches important concepts with various examples. There are 9 chapters in total (estimated reading time by Overdrive is 3 hours) and I will briefly share some of the content that resonated with me.

Screenshot from the book, page 63-64
The Latte Factor
Everyone knows this, spending money on a cup of coffee in Starbucks ($5+) vs hawker/food court ($1+). Indulging once in a while is fine but buying it every day, is it really necessary? The latte factor is not limited to just coffee, it can be anything (cigarettes, atas restaurant, etc.)!

Screenshot from the book, page 65-66
Assuming if you were to save the money and invest them, you can become a millionaire too! The author recommended tracking your expense for a period of time (a week/month) in order to find your latte factor.

Pay Yourself First
We work hard to earn money and every month we will be paying bills, loans, taxes, etc once we receive our salary. How often does one pay himself/herself first by saving for retirement?

Screenshot from the book, page 109-110
The context is based on the 401k and IRA in the United States but the idea is pretty relevant in Singapore too which will be our CPF and SRS. The author recommended one to "pay" himself first by contributing to the retirement account and using pretax money to invest. The idea is simple, every dollar that I earn (take-home pay), that dollar will be taxable by IRAS as income tax. However, if I were to transfer the money into CPF or SRS, that would no longer be taxable and I can then invest more.

I blogged about the CPF RSTU previously on how it can easily be one of the best investment (no/low risk and high return). Topping up $7,000 at one shot can be a lot but one can break it up into 12 payments. The moment your salary is in, credit $583 into your CPF and pay yourself first instead of our government. lol. The author recommended doing this automatically which is possible in the US. Unfortunately, I could not find a GIRO/automatic option for our CPF. As pointed out by a reader (jusiu), it is possible to GIRO the RSTU! The form can be accessible here - RSTU Giro Form :)

Making It Automatic

Screenshot from the book, page 133-134
After saving up, the next thing is to invest your money. The author recommended investing in mutual funds or ETF as they offer great diversification. Interestingly, in the latest edition of his book, he included robo advisors as an alternative and recommended the bigger firms such as Betterment and Wealthfront. Unfortunately, we cannot use our CPF or SRS to invest through any of the robo advisors in Singapore.

The book also discusses other things such as having sufficient emergency fund, not having any credit card debts, how to get out of debts and donating money to charity. You can refer to the below "Millionaire Blueprint" for a quick overview.

The Millionaire Blueprint

Screenshot from the book, page 257-258 or http://finishrich.com/blueprint/
I highly recommend one to read this book!

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  1. Yes, you can do RSTU using Giro, as I had been doing so for a long time. Not easy to find at CPF website or Google but it's here -

    1. Oh my! Thanks a lot of sharing! I will be filling up that form. Hahahaha. I have updated the article :)