The Art of Manliness - Become an Automatic Millionaire

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00:01:29.780 strenuouslife.com. Now on to the show. Building substantial personal wealth can

00:01:42.380 feel difficult and out of reach, but my guest says that even those with modest means can,

00:01:46.700 with a few simple decisions and strategies, become millionaires and even multi-millionaires.

00:01:51.180 David Bach is the author of the best-selling, newly updated personal finance classic,

00:01:55.340 The Automatic Millionaire. Today on the show, we talk about the money management framework that'll

00:02:00.040 put you on the path with free, secure, rich retirement. David explains his controversial

00:02:05.280 latte factor principle, the astonishing power of compounding interest, how setting your finances

00:02:10.060 on autopilot may be the most important financial move you can make, why he still believes in buying

00:02:14.360 a home as an incomparable way to build wealth, the best way to pay down your debt, and more.

00:02:19.060 After the show's over, check out our show notes at awim.is slash millionaire.

00:02:25.340 All right, David Bach, welcome to the show.

00:02:37.720 Thank you, Brett. It's great to be with you. I'm really excited to do this show with you.

00:02:41.660 Well, it's been two decades since the original release of your book, and I'm sure a lot of our listeners have read this or heard about it, The Automatic Millionaire.

00:02:51.180 And in this book, you lay out a personal finance philosophy that can help people save for retirement and have financial security automatically.

00:02:59.980 But you adopted this or you figured this out when you were a young financial advisor.

00:03:04.820 And you had this experience early on in your career with a married couple that opened up your eyes to the fact that wealth isn't about how much you earn, but how you manage what you earn.

00:03:16.960 So what were these people doing differently from the other people you were advising at the time?

00:03:21.180 Well, so let me tell you how I met this couple. And the couple I refer to them in the book is

00:03:25.740 Jim and Sue McIntyre. I used to teach back in the day, this is like in the 90s, I taught a

00:03:31.620 retirement planning course. And people would come to my class, it was actually out of high school,

00:03:36.440 it was adult education. And I would teach these classes at night, usually over four weeks. And

00:03:41.820 we would talk about what you need to do to prepare for retirement. And typically people who came to

00:03:46.580 my class were in their late 50s. If someone was 55, it was early. So people would usually come

00:03:52.800 to these classes right around when they're getting ready to retire. And then often those people after

00:03:58.780 a four-week class would come into our office to have us do a financial plan for them to see

00:04:03.340 were they in good shape to retire. And we would offer that to everybody as a complimentary thing.

00:04:09.020 And that was how we got a lot of our clients. I used to work at Morgan Stanley and we would get

00:04:12.140 clients from teaching a class on retirement planning and then doing these financial plans.

00:04:17.060 So most people, when they would actually come into my office and retire, they would be in

00:04:23.120 their early 60s, somewhere between the age of 60 to 65. And that was very common. And we had

00:04:29.080 people who worked at all the major companies. I lived in the Bay Area at the time, and they

00:04:33.080 worked at companies, everything from Safeway to Pacific Gas and Electric to Chevron, AT&T,

00:04:40.400 Pacific Bell. These were a lot of the major corporate companies in the Bay Area of the

00:04:45.040 kind of people we were working with. And they were really mid-level employees, people making

00:04:49.860 between $50,000 to $100,000 a year. They weren't the CEOs. They were just your average hardworking

00:04:55.880 American. And they were able to come into our office and retire in their 60s because they had

00:05:00.680 paid themselves first and they had bought a home and they had paid their debt down. 0.91

00:05:04.120 But the McIntyres were different because the McIntyres came up to me in my class and they

00:05:09.200 had told me in the class, because you get to know your students, you know, Jim had told me he made

00:05:13.380 a little over $53,000 that year. And he also asked me if he'd come in my office and meet with me for

00:05:20.840 a retirement planning meeting. And this was, you know, early in the week. And I said, absolutely.

00:05:25.160 And he said, well, can we come in this week and meet with you? And I said, well, what's the

00:05:28.880 urgency? He's like, well, I really want to retire. You've got me really excited about retirement

00:05:32.700 and I'd like to retire on Friday. And his wife, Sue, was a beautician. She had really spiky blonde

00:05:38.740 here. And she's like, isn't that great? He wants to retire on Friday. And I was like, how old are 1.00

00:05:43.680 you guys? And they were in their early fifties. And so I said, well, sure, you can come in my

00:05:48.560 office. I'll meet with you on Wednesday. And they came into my office. And what I really thought

00:05:53.520 was going to happen, Brett, is I thought I was going to have a really, you know, a hard meeting.

00:05:57.540 I thought I would, you know, end up showing them that probably they weren't ready to retire yet.

00:06:02.300 I just assumed this.

00:06:03.780 And so they showed up in my office with a Safeway bag, actually.

00:06:09.060 He didn't work at Safeway, but he had a Safeway bag.

00:06:11.140 And all of his statements and all of his stuff was in a bag.

00:06:14.020 And he basically dumped it out on the table.

00:06:16.680 And he said, well, I want to show you everything I've got.

00:06:19.460 And I had a yellow pad of paper.

00:06:21.360 And I started adding up what he had.

00:06:23.200 And I looked at his 401k plan.

00:06:24.960 He had over $600,000 in it.

00:06:27.180 And all of a sudden, I noticed he had a home.

00:06:29.100 And his home was paid off.

00:06:30.220 And he had a rental house.

00:06:31.140 and the rental house was paid off

00:06:32.480 and he had some money in savings accounts

00:06:34.140 and investment accounts

00:06:35.000 and his wife had money put away.

00:06:36.720 And as I'm totaling it all up,

00:06:38.380 they had nearly $2 million.

00:06:40.240 And they were in their early 50s

00:06:42.820 and their average income had been

00:06:44.800 less than $50,000 a year over their lifetime.

00:06:49.260 And it blew my mind away.

00:06:51.500 And what happened

00:06:52.240 and the reason this meeting changed my life

00:06:54.380 is what happened is

00:06:55.520 I actually stopped the meeting

00:06:57.100 and I said,

00:06:57.580 I have to know how you did this, right?

00:06:59.600 Like, because I, because I see a lot of people come to my office in their 60s and they can't

00:07:04.160 even afford to retire.

00:07:05.300 You're coming to my office in your early 50s with an ordinary income and you've got all

00:07:09.020 this money sent aside.

00:07:10.040 How did you do this?

00:07:11.140 And they laughed and they're like, well, David, we did a lot of what you talked about in your

00:07:14.420 class.

00:07:14.780 Like, you know, we paid ourselves first, we saved money automatically.

00:07:17.760 And they basically walked me through what they did.

00:07:21.360 And I ended up going back to my office super, like, kind of in shock, almost depressed.

00:07:30.420 And the reason I was depressed at the time is that I was earning twice what they were.

00:07:35.480 I had now reached what I thought was a high level of success.

00:07:38.980 I was a young kid making over $100,000 a year, and I was still living paycheck to paycheck.

00:07:44.680 And that had been my experience when I came out of college.

00:07:47.760 I thought if I made $50,000 a year, I would be rich.

00:07:52.400 And then I spent more than $50,000.

00:07:54.140 So I thought, well, it's just not enough money.

00:07:55.540 If I make $75,000, I'll be rich.

00:07:58.060 I'll start saving money.

00:07:59.120 And there wasn't enough money.

00:08:00.000 And then $100,000 was the same thing.

00:08:01.620 And so when I met the McIntyres, they were my wake-up call that it's not what you make,

00:08:05.280 it's what you keep.

00:08:06.720 And that moment, it's not what you make, what you keep is what changed my whole life.

00:08:10.940 And then I can tell you what I ended up doing because I changed everything in my life as

00:08:13.980 a result of that.

00:08:15.060 And then ultimately, I went off and taught these lessons.

00:08:17.520 Yeah, we're going to talk about these lessons because they're simple stuff.

00:08:20.820 It's nothing complex.

00:08:22.000 You don't have to know anything about quantitative investing or anything like that.

00:08:26.060 It's just brass tacks things.

00:08:28.300 Let's start with one of the fundamentals that you're famous for.

00:08:31.560 Something I've noticed in personal finance trends is there seems to be like this pendulum effect.

00:08:37.120 It's interesting.

00:08:37.720 A lot of people don't know this.

00:08:38.540 My very first blog that I started in 2005 was a personal finance blog.

00:08:42.340 It was called The Frugal Law Student.

00:08:43.540 And I remember at the time, 2005, this was around when your book came out, there was a lot of emphasis on saving in small ways, like looking for ways you can save money, you know, just sort of nickel and dime it, make some small cuts so you can save more.

00:08:59.560 And then it seems like recently there's been this rise in this ethos of like, well, you don't need to think about that nickel and dime stuff. It doesn't matter. You need to focus on big savings. But you're still a proponent of the idea, which is encapsulated in what is perhaps your most famous. And sometimes I've seen people criticize this idea in the personal finance world, this idea of the latte factor. For those who aren't familiar with it, what is it?

00:09:23.280 yeah well so latte factor again go back to teaching my classes i was teaching a class

00:09:29.320 on on how to save and invest and use your 401k plan and pay yourself first and a young woman said

00:09:34.760 in the class this is a great idea in theory but i can't do it and i said what do you mean you can't

00:09:38.920 do it you can't save five dollars a day ten dollars a day and she's like no i can't do it

00:09:43.440 and she was literally sitting there sipping out of a starbucks cup of coffee her latte and so i

00:09:49.000 stopped the class if there was a blackboard in the class and i'm giving you the history of the

00:09:52.440 latte factor. I said, what's your name? And she said, my name's Kim. I go, Kim, walk me through

00:09:57.120 a typical morning. I see you're holding a cup of coffee from Starbucks. What did that cost? And

00:10:00.740 back in the day, that was like $3.50. Today, if you go to Starbucks and you get yourself a big

00:10:05.140 cup of coffee, you're going to spend in New York City up to $10. So lattes aren't $3 anymore.

00:10:10.260 They're now $5, $6, $7, $8, $9, $10 a day. So I just walked through her morning. She goes to

00:10:15.420 Starbucks. She spends $5 a day at Starbucks between a coffee and a biscotti. Then she goes

00:10:20.700 and has Jamba Juice. She spends $5 a day at Jamba Juice. She hasn't even got to lunch yet. 0.97

00:10:25.940 And I took the math and I showed her, look, Kim, she worked at the Gap. I said, Kim, I know the

00:10:32.280 Gap has a 401k plan. I know the Gap has a matching contribution to your 401k plan. If we could get

00:10:38.040 you to just save $10 a day, and this woman was in her early 20s, I said, and we took that out over 0.75

00:10:43.700 40 years. Let me show you what the compound interest could look like. And we ran the numbers

00:10:48.320 for her. We showed her 8% and we showed her 10% and we showed her 11%. We showed her all the

00:10:52.420 different calculations and basically showed her that if she would just start paying herself first 0.92

00:10:56.380 and got the match at her company, she could be a millionaire at least. And we ran the numbers for 0.84

00:11:02.920 her. And it was like, at the time, it was like $1.8 million. And she goes, are you trying to

00:11:07.480 tell me my lattes are costing me $1.8 million? And a guy sits in front of the room, turned around

00:11:12.420 and goes, yes, that's exactly what he's trying to tell you. And what happened is I left that class

00:11:17.200 and every single person was talking about the latte factor.

00:11:20.320 And they were talking about what their latte factor was.

00:11:24.440 And so the latte factor has always been a metaphor,

00:11:28.600 not about the coffee.

00:11:30.080 It's a metaphor for how do you spend small amounts of money

00:11:32.720 unconsciously not thinking about it

00:11:34.660 and then telling yourself you can't afford to invest.

00:11:37.400 Because if you don't believe you have the money

00:11:39.880 to start investing, you will never start.

00:11:42.860 And so I became kind of famous for teaching this philosophy of like, fine, we're spending small amounts of money so you can get started.

00:11:53.680 Start with $5 a day.

00:11:54.960 Start with $10 a day.

00:11:56.080 Start with $20 a day.

00:11:57.880 So the latte factor has always had pushback, but nothing I've done has probably changed more people's lives than the latte factor because what the latte factor is, the metaphor, is a wake-up call.

00:12:08.300 People hear it, some people, they get it.

00:12:11.360 and they're like, he's right. I do have this thing. It might not be coffee. It might be

00:12:16.620 something else. It might be cigarettes. I've had people tell me that they stopped smoking

00:12:19.660 because they ran their cigarette factor. And they realized that they literally had spent

00:12:24.940 hundreds of thousands of dollars on cigarettes over their lifetime. And had they invested that

00:12:29.280 money, they would be a millionaire. And I've had people tell me they stopped smoking because of it.

00:12:33.420 Some people have stopped drinking. Some people have stopped eating out every single meal that,

00:12:38.220 you know, they, they actually brown bag their lunch. So it's changing your behavior consciously

00:12:43.600 instead of spending money unconsciously. And it's helped a lot of people. And then I think

00:12:48.740 that, you know, those who, who like to hate on it, a lot of people have used hating on the latte

00:12:52.760 factor to build their own personal brands. You know, there's people go around making, you know,

00:12:57.840 creating cups, say, you know, you and your latte factor basically, but you know, whatever you want

00:13:02.960 to keep drinking your coffee, drink your coffee. You want to drink your bottle of water, drink your

00:13:05.680 bottle of water. But if you're not saving $5 to $10 a day and you're spending $10 a day going out

00:13:10.200 to Starbucks and having bottled water and coffee, I don't know what else to tell you. It's your life.

00:13:15.760 You want to turn around and be 60 with no money and hope the government can help you? That's your

00:13:20.080 decision. But I can tell you, looking into the future, the government will not be there to help

00:13:25.180 you. All the things that we have been dependent on, thinking we'll have, Social Security, Medicaid,

00:13:30.420 Medicare, ultimately all the safety nets that are in America today are going to shrink and they're

00:13:35.060 shrinking. And so you have to build your own financial security. You have to build the mode

00:13:41.780 around your house. And my message has always been, you can do it. You just need to get started.

00:13:48.420 And the key to getting started is to start, if you have to, start small, $5 to $10 a day can

00:13:53.240 be a great place to start and then work your way up and then make sure you're doing it automatically

00:13:58.440 so you're not needing to use discipline. You don't need to think about it. It's the money moves for

00:14:04.520 you in the background while you sleep. That's what the Automatic Millionaire is about. Set it

00:14:08.480 and forget it. And I teach you in this book how to literally put your financial life on autopilot

00:14:13.200 in less than an hour. Yeah, we're going to talk about how you can set it and forget it. But I

00:14:16.920 think it's interesting in the past 20 years, there's definitely more things out there that

00:14:21.340 could be a latte factor. I mean, think about all the things that we have now that didn't exist 20

00:14:25.180 years ago. DoorDash, Uber, in-app purchases, subscriptions, streaming services. So I'm sure

00:14:32.120 everyone can find their own latte factor. They just got to look at what they're spending and be

00:14:35.740 like, okay, do I really need this thing? And if I got rid of it, how could I invest that money

00:14:40.240 so it pays for my retirement in the future? So, you know, if someone who is 30 saved and invested

00:14:45.480 $10 a day until they're 65 and got a 10% return when they were 65, they'd have a million dollars.

00:14:52.280 So as you were saying, I mean, it really adds up. And as I was reading the book, the thing that

00:14:56.200 really hit home to me is that in order to really, I think, understand the power of the latte factor,

00:15:00.520 you know, saving just five bucks, 10 bucks a day, how it can make you lots of money in your

00:15:06.100 retirement is that you have to understand the power of compounding and finances. And I think

00:15:10.800 compounding is one of those things that people think they understand, but they don't really

00:15:15.320 understand just how powerful it is. So help us understand compound interest. You know, compound

00:15:20.360 interest, Einstein, Einstein said this was like the, you know, the miracle called the eighth one

00:15:25.720 of the world is compound interest. Compound interest should be taught in high school.

00:15:30.400 You shouldn't get out of high school without understanding the miracle of compound interest

00:15:34.240 and what that looks like and what it works. One of the things you need to understand is

00:15:37.420 what's called the rule of 72. How long does it take to double your money? First, let's start

00:15:43.460 with the rule of 72, and then we'll go into compound interest. The rule of 72 is you take

00:15:47.680 72 and you divide that 72 by an interest rate. Let's say it's 10%. Basically, if you take 72

00:15:54.380 and you divide it by 10%, if you're going to earn 10% annually and you divide it by 72,

00:15:59.880 you will double your money in a little over seven years. And if you earn 1%, you're going to double

00:16:06.220 your money in 72 years, right? So first you have to understand that the rate of return has a huge

00:16:11.980 amount to do with how much your money will compound. So some people don't even understand

00:16:17.220 that. Like they go, well, if I save $10 a day, I'm saving, you know, what is that? That's $300 a

00:16:23.680 month. That's $3,650 a year. That's $36,500 over a decade. How is he getting the math? Where is he

00:16:33.860 coming up with this is going to be worth millions of dollars? They're not factoring in the interest

00:16:37.740 rate, what you earn on your money. And how do you earn that interest rate? Are you putting it in

00:16:42.220 stocks? Are you putting it in bonds? Are you putting it in real estate? Are you sticking it

00:16:45.940 in an index fund? Are you in the stock market? Those things determine the rate of return on

00:16:50.440 your money. And so what happens is a lot of people just base, they're fundamentally financially

00:16:55.820 illiterate and they don't understand all these basic things. So a simple thing you can do,

00:17:00.740 I'll give you a website you can use that's free. You can go to investor.gov. They have a very

00:17:05.760 basic compound interest calculator and you can run numbers. You can go in and put down, okay,

00:17:12.040 I'm going to save $300 a month. If I save $300 a month and I save it for 10 years at 10%,

00:17:20.240 what could it be worth? And it will show you the calculation. Then you run it again. You go,

00:17:25.220 what if I save $300 and 10% for 20 years? What could it be worth? What would it be worth in 30

00:17:29.700 years? What would it be worth in 40 years? And what you'll see is that money grows like a snowball

00:17:36.580 astronomically once it gets into the second, third, and then the fourth decade. It just starts

00:17:42.900 to compound and compound and grow and grow and grow and grow. The first decade, you don't see

00:17:46.500 a lot of movement. But by the fourth decade, it's just crazy. It's just your money's making you

00:17:51.000 money. And so for every dollar that you spend today that you don't invest, if you take a dollar

00:17:55.640 today, another way of saying this, you take a dollar today and you invest it, 40 years from

00:17:59.760 now, that dollar is going to be worth $20 depending on how you invest it. So if you go, people go buy

00:18:06.120 cars, they come into money and the first thing they do is buy a car. You take $50,000 and you

00:18:10.900 buy a car. That car is worth, if you're lucky, $35,000 the moment you buy it, after you drive

00:18:17.340 it off the lot. It's gone down in value. You take that same $50,000 and you invest it in a simple

00:18:22.280 index fund. You use a Vanguard fund, like a Vanguard total stock market fund. The symbol is

00:18:26.400 VTI. 3600 stocks in that fund. And you take that out over 30 years and you run, well, what could

00:18:32.780 $50,000 be worth 30 years from now? And you can go to investor.gov and run the calculation. You'll

00:18:39.240 see what it's costing you to spend the money. So we're not raised and taught often when we're young

00:18:45.880 how important the decisions we make around our spending is. And one thing I will tell

00:18:51.720 anyone who's listening is like, go open up your, most of you have Apple phones, go open up your

00:18:55.360 iPhone, go over to the settings and then go search subscriptions and go see how many people have

00:19:01.920 attached themselves already to your paycheck. Cause you'll be shocked. I did this on a podcast

00:19:06.300 and one of the hosts, he went through it and he had 24 subscriptions, I think, and he had over

00:19:10.960 $500 in subscriptions. And he realized like, you know, I'm only using three of these. And that

00:19:15.300 happens all the time. Now that's maybe an extreme example, but my normal experience when I'm doing

00:19:20.440 a money makeover for somebody is that the average person is spending a couple hundred dollars

00:19:25.420 minimum a month on subscription services they don't really need. I just can't get over it

00:19:31.620 sometimes. A friend of mine was in town and I know he doesn't have a lot of money in savings.

00:19:34.980 because he doesn't have a retirement account.

00:19:36.540 And he was telling me, he was asking me about,

00:19:38.120 he was telling me about a bunch of different shows.

00:19:39.720 And I'm like, what do you watch that show on?

00:19:41.860 He's like, oh, I watch it on HBO.

00:19:43.740 I'm like, you have an HBO subscription?

00:19:45.020 He's like, yeah.

00:19:45.480 Well, they told me about another show.

00:19:46.620 What do you watch that on?

00:19:47.320 I'm like, oh, Lulu.

00:19:48.800 I'm like, I'm in the Hulu.

00:19:50.380 You have a Hulu subscription?

00:19:51.320 Yeah.

00:19:52.060 He's like, oh, we have all the subscriptions.

00:19:53.580 This guy's got like 10 different subscriptions

00:19:55.640 for television shows.

00:19:56.800 And he's not using his retirement account.

00:19:59.580 So I don't have any of those subscriptions.

00:20:02.400 And I have plenty of money in my retirement account.

00:20:04.980 But people just don't think.

00:20:06.620 They don't think about the fact that they're doing all this hard work and they're just giving their money to everybody else.

00:20:11.160 And all I want to do is help people kind of free themselves financially so that they don't give all of their money to everybody else.

00:20:16.360 At least keep 10 cents out of every dollar that you earn.

00:20:19.600 Yeah, so I just put the example you used.

00:20:21.300 So let's say instead of paying $50,000 for a car, you take that $50,000 and invest it.

00:20:27.280 So I did this on Investor.gov.

00:20:29.080 If you estimate a 10% return in 30 years, you've almost got a million dollars.

00:20:34.440 And I think you can think about house costs the same way too. So if you buy a $600,000 house instead of a million dollar house, and you only need to put down $100,000 down payment instead of a $200,000 down payment, and you invest that $100,000 saved in 30 years, it's almost $2 million. And then in 35 years, it's like, I think it's $3 million. So choosing the more affordable house, it's like you just made yourself $3 million automatically. I mean, it's really cool.

00:21:02.300 And I think the big takeaway for me on compound interest is that it starts off like a snowball.

00:21:07.980 Like that first decade, you're not going to see much.

00:21:10.280 And you're probably going to be thinking, why am I even doing this?

00:21:13.020 But in the second and third decade, that's really when things start picking up.

00:21:17.460 And by that fourth decade, you're looking at the numbers.

00:21:19.900 You're just like, wow, this is crazy.

00:21:22.280 And the book gives this great hypothetical with three different people that really brings

00:21:26.420 this home.

00:21:27.280 So you've got three different people.

00:21:28.600 person one starts investing $3,000 a year at age 15 and does it for five years and then stops.

00:21:35.560 So total amount invested $15,000. By age 65, that $15,000 has grown to 1.6 million. Person two

00:21:44.880 doesn't start investing until age 19 and they invest $3,000 a year for eight years. So $24,000

00:21:51.980 total. So this is more money than person one. But at age 65, they end up with 1.5 million.

00:21:58.420 So they put in more money, but got out less

00:22:01.220 because they were in the market for fewer years.

00:22:03.280 Then person three doesn't start investing until age 27

00:22:06.660 and invest $3,000 every year until they retire at age 65.

00:22:11.480 So that's $117,000 total.

00:22:14.680 So it's way more than the other two.

00:22:16.380 But their ending balance is 1.3 million.

00:22:19.500 So it's the least.

00:22:20.460 They put in the most money over the most years

00:22:22.460 and ended up with the lease.

00:22:23.580 And it's simply because the person

00:22:25.660 that invested just $15,000 earlier,

00:22:28.260 even though it was less money

00:22:29.780 and it was earned over just five years,

00:22:32.080 they gave their money more time to compound.

00:22:34.860 Their interest was compounding on interest

00:22:36.840 year after year after year.

00:22:39.500 That chart that you're talking about, Brett,

00:22:41.420 that's another chart that changed my life

00:22:43.120 because that chart was given to me

00:22:45.100 in a training class at Morgan Stanley

00:22:46.600 by an advisor who was retiring.

00:22:49.420 And he said, you know, guys,

00:22:50.820 you're all going to be hopefully successful

00:22:52.520 financial advisors

00:22:53.300 and you do a great job for your clients.

00:22:54.740 make sure you do a great job for yourself. And he showed us this chart and he said,

00:22:58.360 I'm telling you so many financial advisors, so many people in our office who have made a lot of

00:23:02.680 money, who've done a great job for their clients, have not done a great job for themselves. They

00:23:06.820 haven't paid themselves first. They haven't used their IRA accounts. They haven't funded their

00:23:11.600 401k plans. So at a minimum, make sure you do this. And that was one of those moments too.

00:23:17.680 It's like sometimes a chart can change your life where you look at this and you're like,

00:23:20.600 my God, I have to do this. And it's interesting. The book I wrote before, well, the last book I

00:23:26.960 wrote before the Automatic Millionaire Update was a book called The Latte Factor. And it's the first

00:23:30.800 book that my kids really read cover to cover because it's a shorter book and it's a parable.

00:23:35.140 And my kids are like, well, dad, I want one of these IRA accounts. How do we get them?

00:23:39.060 And I opened up a Roth IRA for my 12-year-old and he's now 16. And so we've been funding his

00:23:46.140 Roth IRA, you know, we put him on the payroll and he's been funding his Roth IRA now, fully

00:23:51.740 funding it for three years. And he's already got a $32,000 Roth IRA. And he's going to

00:23:57.580 have, if we keep funding his, you know, helping him and then eventually he does it on his

00:24:01.080 own, his Roth IRA could be worth over $10 million tax-free money by the time he's in

00:24:07.580 his 60s. $10 million.

00:24:10.260 That's crazy.

00:24:11.260 And it is crazy. And that's why like Trump just, you know, they really have these Trump

00:24:15.640 accounts to get kids started really young at birth. And that's all about compound interest.

00:24:20.400 That's why Michael Dell came in and said, hey, we'll help with this. Because if we can get

00:24:24.300 families starting off their kids at birth, it's just a game changer. So we need to be doing more

00:24:30.980 to inspire young people to save and invest. Yeah. This chart is something you want to show

00:24:34.680 to a young person. Be like, look, you can be basically financially set if you start investing

00:24:39.600 early. And so we're clear, like on these charts and these estimates, we're assuming a 10%

00:24:45.560 annual return. Of course, that could change. Every year is different. There's going to be

00:24:50.020 downturns. But even if there's a downturn, compounding is still happening. You might not

00:24:54.720 get the same returns as a 10% return, but it's better than just putting your cash in a mattress

00:25:01.900 or a bank account. Well, and also, Brett, you just said something is really important, Rick,

00:25:06.520 because there's always people that are like, yeah, butters. They're like, yeah, but in 40 years,

00:25:11.640 $4 million won't be worth that much. It's worth a whole lot more than not having $4 million.

00:25:16.020 Yeah.

00:25:16.200 Like the pushback on the automatic millionaire,

00:25:18.280 people are like, well, a million dollars

00:25:19.440 won't be worth that much when I turn 60.

00:25:21.100 Well, it's worth more than zero.

00:25:22.260 If you don't get going, you won't have anything.

00:25:24.060 People go, well, I can't earn 10%.

00:25:25.820 Great, so put it in,

00:25:27.100 you don't think you can earn 10%?

00:25:28.360 Put in a balance fund.

00:25:29.600 Go look up the Vanguard balance fund,

00:25:31.280 one of the most generic balance fund

00:25:33.180 is 60% stock, 40% bonds.

00:25:35.620 Go look at the returns of the balance fund.

00:25:37.360 Look at it from inception.

00:25:38.900 You're going to find it's like 8%.

00:25:40.220 Use that number.

00:25:41.220 Okay, well, that's not going to get me

00:25:42.980 the same place you were talking about.

00:25:44.620 Guess what?

00:25:45.260 then you need to save more. So people throw out and come up with all these excuses. It won't be

00:25:50.720 worth that much because inflation. I'm going to have to pay taxes. I can't earn 10%. And then you

00:25:56.540 show them, okay, well, so if you don't think you earn 10%, what do you think you can earn? I think

00:25:59.480 I can only earn five. Great. Then you need to save 20% of your income. Well, I can't save 20%

00:26:04.340 of my income. The question you have to ask yourself is, are you going to make excuses

00:26:10.080 or are you going to take action?

00:26:12.940 And, you know, as I kind of wrap my career up here,

00:26:16.020 I decided to update the Automatic Millionaire book

00:26:18.240 one more time to reach the next generation.

00:26:20.760 I wanted a book for my kids and my kids' friends

00:26:22.680 and all my friends' kids and, you know, another generation.

00:26:25.680 And I think, you know, the younger generation is,

00:26:28.240 it's probably more financially literate

00:26:30.020 than my generation even was.

00:26:32.360 But in some cases, they've also been super misled.

00:26:36.180 Young people have been super misled

00:26:37.880 down the social media road of get rich quick. 0.53

00:26:40.820 And the truth of the matter about getting rich quick

00:26:43.140 is it doesn't work.

00:26:44.820 I'm 59 years old.

00:26:46.160 I haven't met too many people who've gotten rich quick.

00:26:48.200 I've met a whole lot of people who spent their whole life

00:26:49.640 trying to get rich quick, and they're still broke.

00:26:52.160 When I look at social media

00:26:53.540 and how young people talk about personal finances,

00:26:55.460 they're definitely talking about it more

00:26:57.040 than I was talking about it when I was their age.

00:26:59.560 But I notice a lot of pessimism about it.

00:27:02.980 And yeah, I mean, I can see where it's coming from.

00:27:05.000 It's, you know, houses are more expensive.

00:27:06.300 We'll talk about that.

00:27:07.160 you know job prospect it might seem a little you know but i i don't think it's helpful to think

00:27:13.040 well it's everything's crappy so i'm not going to do anything i think i think if that's your plan

00:27:17.620 that's a tragic plan right like and i actually think the next 10 years gonna be the greatest

00:27:21.540 opportunity to build wealth in our lifetime and i think if you miss this opportunity i don't know

00:27:26.140 what's coming behind it but the next 10 years we've just gone through a phenomenal 10 years

00:27:30.440 right like people said you couldn't make 10 when i put the book out 20 years ago they said you can't

00:27:34.820 make 10% annually in the stock market. Well, you've made much more than 10% annually. Like

00:27:38.840 the last 10 years, you've made in many cases 12%, 13%, 14%, 15% annually, depending on what index

00:27:45.520 fund you pin in, because the market has been so strong. If you've been in real estate, I mean,

00:27:49.840 between real estate and stocks, it's just, you know, housing prices have gone up fourfold and

00:27:54.400 the stock market's gone up sixfold, sixfold since the book came out 20 years ago. And so the two

00:28:00.840 primary asset classes that matter to be an investor in is real estate and the stock market.

00:28:06.680 And yet, young people are still looking at cryptocurrency, option trading. They're pretty

00:28:12.640 much done with NFTs. But the amount of things that people would ask me about five years ago,

00:28:17.500 what do you think about NFTs? What do you think about this cryptocurrency? What do you think

00:28:20.580 about that meme coin? What do you think about GameStop? Like, oh my gosh, you're just going to

00:28:25.160 get wiped out financially. I can't remember the name of the car that was the truck that was going

00:28:30.540 to be the electric truck right now i'm blanking the guy went to jail and trump partied him i had

00:28:35.580 young people coming up to me telling me they were investing in that truck company and it was going

00:28:39.860 to be the future and and that whole thing was was fraud right and they lost everything and so you

00:28:46.720 know young people are told you you know you should take risk when you're young and i i completely

00:28:51.800 disagree i think when you're young and you're working really hard take risk in your career

00:28:55.620 like go for your dreams but you don't want to be risking your money in your 20s and your 30s

00:29:01.280 because what will happen is you'll turn around and you will have lost everything and you will

00:29:05.060 believe the system is rigged against you and you will never get going and that's happened for a lot

00:29:09.540 of people yeah and i want that to happen for people it shouldn't happen for people we're

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00:30:38.300 And now back to the show. So yeah, the power of compounding interest, it's time. Like the more

00:30:42.720 time that money is in the market, the more time it has to grow. And eventually that second, third,

00:30:47.180 fourth decade, it's just going to start growing exponentially. But what if you're a listener and

00:30:51.420 you're in your 30s, 40s, 50s, and you haven't really saved much for retirement and they might

00:30:58.380 be thinking, oh, geez, I'm hosed. Is their retirement hosed because they missed those

00:31:02.620 early years of compounding or are they able to still take advantage of compounding even if they

00:31:06.900 got a late start? So it's harder if you start late. You know, when I sit in a room with people

00:31:12.440 that are over the age of 50. And I asked, how many of you wish you had started when you were

00:31:17.180 younger? Almost every single hand will go up in the room. It's a universal regret that people have

00:31:24.500 that they didn't start investing when they were younger. And when there's young people in the room,

00:31:28.000 I'm like, look at these people over the age of 50 and learn from them right now because you're

00:31:32.860 going to blink your eyes and you're going to be 50. Now, when you're in your 20s, you see somebody

00:31:38.060 who's 50 and you think, oh my God, they're so old. I'm never going to be there. And the next thing

00:31:40.880 you know, you literally like snap your fingers and you're 50 and then you're 55 and then you're

00:31:44.300 60. So do for your future self, you may not want to do it now, but I was doing an interview with

00:31:50.900 somebody else, uh, Chuck Jaffe. He was a very famous reporter. And he said, um, you know,

00:31:55.480 he did everything right for himself. And now he's getting to, I think he's getting, he's almost 60.

00:31:59.140 And he said, when I was in my twenties, I didn't want to show up at 60 and have my six-year-old

00:32:05.240 self say, uh, dude, what were you thinking? Why didn't you save any money? I wanted my six-year-old

00:32:10.380 self to be like, dude, good job. And he's like, and I'm there. So to somebody who's in their fifties

00:32:16.500 and they're not there, I would say, this is your day to show up for yourself now. And it's never

00:32:21.680 too late. The secret is to start. The beauty of being in your fifties is that usually the kids

00:32:26.860 are out of the house and now it's just you and maybe your significant other. You can start to

00:32:31.780 buckle down and focus on really using the next 10 to 15 years to start to build wealth. And I would

00:32:39.240 again, go to investor.gov, run the calculations. Well, what if I save $1,000 a month? What would

00:32:44.980 that look like in 15 years? What if I save $500 a month? What could that look like in 15 years?

00:32:49.660 Run the calculations and then immediately look at what can you cut expense-wise so that you can

00:32:56.080 start to save more money as fast as possible on an automatic basis. And that will change your life.

00:33:03.700 Yeah. And you talk about there's some, like some of these retirement accounts,

00:33:07.060 they allow for you as you get closer to retirement to invest more tax-free. So to kind of make up

00:33:14.400 for maybe lost investment opportunity that you had. So it's never too late. It's going to be

00:33:19.120 harder, but it's not too late. All right. So what we're doing, we're looking for small ways we can

00:33:22.940 save, finding our latte factor, whatever that is, so we can invest in our retirement. But as the

00:33:28.600 book title is, it's The Automatic Millionaire. Your approach is that the investing needs to be

00:33:32.620 automatic. So you advocate that people pay themselves first each time they get a paycheck.

00:33:37.600 So how much do you think people should set aside for retirement from each paycheck before you pay

00:33:42.540 any other bills or even before you pay the government? So the millionaire formula, we know

00:33:46.980 exactly what the numbers look like. It's at least you want to save one hour a day of your income.

00:33:51.280 So if you work a 40-hour work week, whatever you earn an hour, the first hour a day that you go to

00:33:56.540 work should go to you. You should keep it. You need the money that you make to flow directly to

00:34:01.180 you first. Not pay taxes, not pay your mortgage, not pay your rent, not pay your car payments,

00:34:06.140 not go to Starbucks. It needs to go to you for the future. So one hour day of your income is

00:34:10.560 12.5% of your gross income. And I say we know the formula because there are now over a million

00:34:16.600 millionaires in 401k plans. Fidelity's got probably the most of them. I think it's over

00:34:21.120 650,000 millionaires now are in the Fidelity 401k plan. And they've looked at the numbers and what

00:34:28.060 is their savings rate. And on average, their savings rate is 14% in their 401k plan. They

00:34:33.400 got there because they paid themselves first, one hour a day of their income, and their employer

00:34:37.260 had a match on top of that. And it took about, I think the number is 27 years to get to millionaire

00:34:42.820 status doing that. And their portfolios were typically 70% stock and 30% bonds. So they

00:34:49.400 weren't even 100% stock. So I would tell you, your goal should be to save one hour a day of

00:34:53.220 your income. Now, a lot of people are, you know, average American who is saving is maybe saving

00:34:56.800 3% or 4%. And that is just remotely not enough money. You have to save more. One of the things

00:35:02.360 that's changed since I wrote The Automatic Millionaire is that it used to be you went to

00:35:07.020 work for a company, your company gave you an enrollment package to sign up for your 401k plan.

00:35:12.660 By the way, that enrollment package, the companies that still do that, that meeting the day that you

00:35:17.380 were given an enrollment package or that you were sent an email to sign up for your 401k plan,

00:35:22.380 the decision you make at that moment in time, what percentage you will put in your 401k plan

00:35:28.400 will be the single most important financial decision you make in your life.

00:35:32.680 It is a decision that determines if you will have wealth or not have wealth.

00:35:36.580 And tragically, many people don't pay attention. They talk to their person they're sitting next

00:35:41.440 to in their cubicles. They asked a friend over lunch, what did they do? They might have a stupid

00:35:45.840 friend. He said, oh, you don't want to use the 401k plan. It's a terrible way to make money. 1.00

00:35:49.000 Or they might have a friend that says, oh, just do the minimum.

00:35:50.900 That's what I did.

00:35:51.880 Not put anything more in that plan.

00:35:53.280 I'm only putting in the minimum.

00:35:54.200 That's the absolute worst decision you could ever make.

00:35:57.740 But the ones who go ahead and actually max out their plan, put away 10, 12, 13, 14, 15%,

00:36:03.160 those people will be financially secure and ultimately financially free.

00:36:07.860 Now, what's happened with the new tax, the new laws like the SECURE Act 2.0,

00:36:12.100 companies are starting to automatically enroll you in 401k plans.

00:36:15.720 So you get a job, they enroll you, but they enroll you at 3%.

00:36:20.020 So if you don't go into the plan now and yourself increase it, you are now at the wrong rate.

00:36:26.380 So you have to be proactive.

00:36:27.680 You have to go look at your planning of what percentage am I saving.

00:36:30.780 And then I'm telling you, I'd rip off the band-aid and I would try to get to 10% minimum.

00:36:34.300 And ideally more than that, even 12, 13, 14, 15%.

00:36:37.760 And if you don't think you can do it, move it 1% a month until you hit those goals.

00:36:42.400 because you won't notice a change of your money if it's 1%.

00:36:46.200 But here's the thing.

00:36:47.760 People change jobs a lot more now.

00:36:49.780 So when you change your job, if you're smart,

00:36:53.420 you're going to move this money from one 401k plan to the next 401k plan

00:36:56.840 or you're going to move it into an IRA.

00:36:58.040 If you move it in your next 401k plan

00:36:59.840 or you just simply go get a new 401k plan,

00:37:02.660 we've seen people that were saving 10%, 11%, or 12%,

00:37:06.180 and then they go to the next employer,

00:37:07.900 and the next employer opts them in at 3%,

00:37:10.560 and they never get around to bumping it back up again.

00:37:13.620 Vanguard just did a study that says that that single mistake,

00:37:17.460 changing jobs and having the savings rate go back down to the bottom

00:37:21.460 and not increasing it again,

00:37:23.580 is costing retirees $300,000 in retirement money at retirement.

00:37:29.960 So when I wrote the book, there was like 7 million millionaires

00:37:33.000 and there's now 24 million millionaires in America.

00:37:36.540 And most of these millionaires have become millionaires

00:37:39.320 by saving money automatically.

00:37:41.000 Like the bulk of wealth has been built in two buckets,

00:37:43.260 real estate and stocks.

00:37:44.680 It's people who own homes,

00:37:45.820 it's people who've used automatic saving investing

00:37:48.020 in their retirement accounts.

00:37:49.480 And so a lot of this stuff is really simple

00:37:52.860 and it's simple to listen to,

00:37:55.120 but the key is to take action.

00:37:57.460 It's timeless advice that works.

00:37:59.020 The tax laws have changed,

00:38:00.720 the investment vehicles have changed slightly,

00:38:02.520 but the advice is timeless.

00:38:06.200 You know, the McIntyres, what did they do?

00:38:07.920 They bought a home,

00:38:09.100 They lived in San Leandro, California, the couple in the book.

00:38:11.780 They bought a home in a blue-collar neighborhood,

00:38:14.260 and they focused on paying the mortgage down early.

00:38:17.060 And then they turned around, and they rented that house,

00:38:20.720 and they bought another house on their street.

00:38:22.620 So that when they came into my office,

00:38:24.400 they had two homes paid off, free and clear.

00:38:27.160 One had been paid off by the renter that they put in it,

00:38:29.900 and then they owned their second home, free and clear.

00:38:32.540 One thing they said to me is like,

00:38:34.120 we could have moved, we could have sold the house

00:38:36.480 and bought a bigger home and moved out of our neighborhood.

00:38:38.720 We made a decision not to do that.

00:38:41.100 And again, this is like over 25 years ago when they told me this story.

00:38:44.780 They said, you know, we used to have mortgage burning parties in our backyards.

00:38:50.340 And we made all these friends in our neighborhood.

00:38:52.460 And we all agreed that our goal was going to be to retire in our 50s when our kids were off in college or out of college.

00:38:58.820 And we would celebrate each other paying off their mortgages. 0.99

00:39:02.060 We would have these mortgage burning parties where you burn your final mortgage statement because you're dumb. 0.82

00:39:05.940 And, you know, the timeless advice of like, buy a home, pay your mortgage off, be debt-free, your overhead goes down, that stuff was like old school 25 years ago. 0.95

00:39:16.920 It's still old school, and it still works.

00:39:19.580 I've never seen it, you know, what I've seen in people, why would I want to pay my mortgage off?

00:39:23.220 Well, because people who pay their mortgages off, on average, in my experience, having done this for 33 years, people tend to retire 5 to 10 years earlier.

00:39:32.040 When they have no debt and their overheads have gone way down,

00:39:35.320 they realize they don't need as much money to retire.

00:39:37.840 And, you know, should you retire early if you can afford to?

00:39:41.040 I mean, everybody's different,

00:39:42.240 but I will tell you that most people run out of life

00:39:44.320 before they run out of money.

00:39:46.120 You know, we've got people focusing so much on

00:39:48.900 how much money they're going to have

00:39:50.760 and are they going to run out of money?

00:39:52.200 And really what ends up happening often is people run out of health.

00:39:55.380 I talk about health expectancy.

00:39:58.360 Health expectancy is the actual age in every country

00:40:01.040 that the World Health Organization knows

00:40:02.600 that the average person will get an illness

00:40:04.280 that fundamentally changes their life.

00:40:06.380 And in the United States, it's age 63.

00:40:09.040 And, you know, having now lived longer, I've seen it.

00:40:14.020 Average age of widowhood is 59. 0.99

00:40:15.840 I talked about that in the Smart Women Finish Rich, 1.00

00:40:17.800 my first book, you know, that women, 1.00

00:40:19.220 you have to know what's going on in the finances 1.00

00:40:20.480 because chances are it's all going to be

00:40:21.820 in your hands eventually.

00:40:23.260 And if you don't know, you don't go.

00:40:25.880 Like, it doesn't go well.

00:40:27.180 So you have to know what's going on with the finances.

00:40:29.740 But I've had three best friends pass away

00:40:32.980 and they didn't get to 57.

00:40:35.480 They passed away in their mid-50s.

00:40:37.440 So I think this game about money,

00:40:39.860 money is a freedom tool.

00:40:41.840 And the sooner you get serious with your finances

00:40:45.020 and you automate and you do all the basics,

00:40:48.620 then you can go back to all the other stuff

00:40:49.860 you do in your life.

00:40:50.540 Like money's, the thing about like

00:40:52.080 the automatic millionaire approach

00:40:53.280 is it doesn't take a lot of time.

00:40:55.740 Like once you set up,

00:40:56.760 once you have an automatic investment plan,

00:40:58.900 I don't know if you spend five, but five to 10 minutes a month just looking at it and then you're

00:41:03.560 done. Like you don't need to do anything. Yeah. All right. So the takeaway there,

00:41:07.400 make it automatic. If you have a job with a 401k, you can set up a system so that whenever you get

00:41:12.580 your paycheck, it automatically invests 10%, even more if you want before you even get your

00:41:18.180 paycheck. And then some of those companies, they have matching. So if you invest a certain amount,

00:41:22.440 they're going to match that up to a certain amount. And this is all tax-free. It's going

00:41:26.380 into 401k it's a retirement account if you're self-employed you might have to set this up by

00:41:30.200 yourself but it's easy you can set up a system with your bank account so that every month a

00:41:34.560 certain amount of your income goes into an investment account and then your big proponent

00:41:39.220 when once you get that money into retirement account keep it simple your big proponent of

00:41:43.920 like the target investment funds so these are funds designed for like if you're going to retire

00:41:47.460 in 2032 well here's what the stock and bonds makeup will be and then it'll shift as you get

00:41:52.780 closer to retirement or just a simple index fund like the VTI that matches that. So just keep it

00:41:58.500 simple. It's all about keeping it simple. You're not wanting to check the stock market. You're not

00:42:01.800 doing option investing or any of that crazy stuff you see on Wall Street bets on Reddit. Super

00:42:06.680 simple. You don't want to even think about it. I want to talk about this homeownership thing.

00:42:11.000 So you said that the biggest pass to wealth are stocks and real estate and homeownership. Lately,

00:42:17.760 I've been seeing this sentiment online that homeownership is a bad investment compared to

00:42:23.260 just sticking to the S&P 500. So it's like, why would you buy a home? Because you would earn more

00:42:28.740 in investments than you would pay in interest, right, on your mortgage. So why are you losing

00:42:34.860 out on that? But like you said, you still believe that the home is one of the ultimate investment

00:42:38.780 tools for the middle class. So why is that? Well, okay, so let's just look at the facts.

00:42:45.200 And interestingly enough, the facts haven't changed that much over 20 years,

00:42:48.320 except that home prices have gotten even more and more and more and more expensive.

00:42:51.380 So anybody who bought a home 20 years ago has done phenomenally well, right?

00:42:55.720 Even the last five years, they've done phenomenally well.

00:42:58.460 So the reason people are against home ownership right now is it's extremely hard to buy a house.

00:43:04.080 It's expensive.

00:43:04.660 There's 50 markets in the United States where the average person can't afford to buy a home,

00:43:08.380 and it's cheaper for them to rent than buy.

00:43:10.060 The problem is renting's a trap.

00:43:12.640 So when you rent, if you rent in your 20s and you rent in your 30s and you rent in your 40s,

00:43:17.300 you're literally going to turn around your 50s and your 60s having not probably built any net

00:43:20.620 worth unless you're paying yourself first automatically. But even if you pay yourself

00:43:24.500 first automatically and you use your 401k plan, it's like a boat with one engine or two engines,

00:43:29.420 right? Like you have one engine and you're saving 10% of your income. Great. That's phenomenal.

00:43:33.760 But you didn't buy a house. You didn't get any of the opportunities of all the wealth and equity

00:43:37.700 that comes from building a home.

00:43:39.000 There's like $40 trillion in America in home equity.

00:43:42.640 Again, it's the second amount of money.

00:43:44.220 The most amount of money

00:43:45.320 that's in the average American's net worth statement

00:43:47.760 is in home ownership.

00:43:49.440 And the thing about home ownership

00:43:50.480 is that you have to live somewhere as long as you're alive.

00:43:53.740 As long as you're alive, you got to live somewhere.

00:43:55.380 Like you can't live inside a mutual fund.

00:43:57.480 So people go, oh, well, you can just buy an S&P 500 fund.

00:44:00.340 You can buy the index fund.

00:44:01.400 It's going to, you know, close up 10% annually.

00:44:03.340 First of all, it doesn't always go up 10% annually.

00:44:05.600 Second of all, you can't live inside a mutual fund.

00:44:07.500 you have to live somewhere. Well, it's cheaper for me to rent right now than to buy a place.

00:44:11.320 Okay. That might be true, but guess what? Rents are going to go up. Rents have gone up so much.

00:44:15.280 I mean, in New York City right now, go look up the average cost of rent in major cities, New York,

00:44:21.780 Chicago, Los Angeles, San Francisco. It's $3,000, $4,000, $5,000, $6,000 a month for one bedrooms,

00:44:28.460 like not even two bedrooms. It's unbelievable what rents are costing. And I promise you where

00:44:34.680 those rents are going in the next 10 years is higher. And in 20 years, it's higher. So the cost

00:44:39.660 of renting is always going to go up. Why is that? Because everything's more expensive with inflation.

00:44:44.860 You have taxes and you have insurance and you have maintenance. And the people who own the home or

00:44:50.600 the apartment building that you're renting are not doing it for charity. They did it for an

00:44:56.180 investment. So they pass on all of their expenses to you so they can get rich. So you just have a

00:45:03.140 choice. Are you going to make your landlord rich or are you going to make yourself rich?

00:45:07.680 Now, is it harder for the average person to buy a home in major cities? Absolutely. When people

00:45:12.400 are doing who really want to own, they're moving to the next 50 markets where it's affordable.

00:45:17.800 I was a co-founder. I'm technically still a co-founder of a registered investment advisor

00:45:22.300 called AE Wealth Management, a huge company based in Topeka, Kansas. And it's interesting

00:45:28.440 because I just heard from one of my partners, my co-founder, Cody Foster. He just sent me a

00:45:32.480 message yesterday. And he's like, you know, 10 years ago, we were talking about the fact that

00:45:35.960 Topeka, Kansas, let me just give you an example. You said 10 years ago, I came out and I did an

00:45:40.060 automatic millionaire talk to all of our employees. And it was so interesting because in our office,

00:45:45.520 you know, I'd say the average age of people in our office were between 25 and 35. So like,

00:45:50.120 you know, millennials. And I had hundreds of people in the room. I'm like, how many of you

00:45:55.920 want to buy a home? All the hands went up. How many of you already own a home? And interestingly

00:46:01.220 enough here in Topeka, over half the room, average age was like 27, had already bought a home. 27

00:46:07.140 years old, they already own a home. Now, why could they own a home in Topeka? Because Topeka,

00:46:12.240 housing prices are affordable. I don't know what they are today, but back then the average housing

00:46:15.700 price was like $65,000 for a home. So they were able to, I said, Cody, the American dream in

00:46:22.760 Topeka, Kansas is totally available. You can go get a great job at a company like we have here

00:46:27.120 And people can get married, buy a home, go to church on the weekend, take their kids to baseball.

00:46:32.920 The American dream is still here.

00:46:35.500 And the interesting thing about that is the American dream is all over the Midwest and in lots of places.

00:46:41.620 And, you know, the average homeowner in America is worth 43 times what an average renter is worth.

00:46:47.540 Average renter has a net worth in the United States of less than $10,000.

00:46:50.520 And an average homeowner has a net worth of over $400,000.

00:46:53.740 I mean, the numbers and the data.

00:46:55.980 And so I just think it's tragic.

00:46:57.820 Like, it's one thing to say,

00:47:00.220 I just can't afford to buy a house right now.

00:47:02.340 I don't have enough money for a down payment.

00:47:03.760 Mortgage rates are too high.

00:47:05.000 That can be true.

00:47:06.280 But to tell yourself it's going to be cheaper for you to rent

00:47:08.980 over the next 10, 20, 30 years

00:47:10.900 than to own something and pay the debt down

00:47:12.760 and be debt-free one day,

00:47:14.660 it's just not true.

00:47:16.240 And so I hope for a lot of, you know,

00:47:18.440 for a lot of young people,

00:47:19.780 here's what's going to really happen.

00:47:21.140 There's $125 billion in wealth transfer

00:47:25.500 that's going to take place in the next 20 years.

00:47:28.000 And it's an enormous level of wealth transfer

00:47:30.940 that's going to go from one generation to the next.

00:47:32.900 And you know what the first thing these people are going to do 0.96

00:47:34.960 to have them bought a home 0.98

00:47:36.160 when they inherit money from mom and dad

00:47:37.840 or grandma and grandpa?

00:47:39.220 They're going to buy a house.

00:47:40.640 And the families that actually will have inheritance to pass down,

00:47:43.700 you know why they have inheritance to pass down?

00:47:45.820 Because they bought a home.

00:47:47.820 So when you look at demographics

00:47:50.220 and you go, who has money in America?

00:47:54.020 It's families that own homes

00:47:55.560 because that's the thing that determines

00:47:57.460 if wealth gets transferred from one generation to the next.

00:48:00.200 That's how generational wealth gets created.

00:48:02.560 So I feel for a generation of young people

00:48:05.800 that I think are really being, in many cases,

00:48:08.220 by financial influencers, really led astray.

00:48:10.980 All right, and if you own a home,

00:48:12.520 you encourage people to pay it off faster.

00:48:15.520 And there's a simple approach.

00:48:16.760 It doesn't mean you have to pay it down super fast.

00:48:18.600 it's as simple as making an extra payment or two a year. And that can really add up because you're

00:48:24.200 saving money that would have gone to interest instead. Yeah. One of the simplest ways to do

00:48:30.500 is biweekly mortgage. You can keep your mortgage, but you just split your mortgage payment in half

00:48:34.340 and you pay half every two weeks. And that trick allows you to actually make one extra payment a

00:48:38.900 year and making one extra payment a year takes a 30 year mortgage and pays it down in 25 years

00:48:43.600 typically. And that will save you, for the average mortgage, over $100,000 in interest

00:48:49.600 payments. Getting a 15-year mortgage is another, it's harder, but getting a 15-year mortgage is

00:48:54.160 another phenomenal way to get a home paid off early. Now, when rates were low, this was much

00:48:59.260 easier. Today, with rates being 6.5%, 7%, it's gotten much harder. But, you know, rates will

00:49:04.840 come back down again, and you'll be able to refinance and hopefully get a lower rate. But

00:49:08.360 even at 7% right now, rates are still on a historical basis. It's actually, people don't

00:49:12.660 realize it, but 7% is a pretty decent rate compared to where it's been. There've been years where it

00:49:16.180 was over 10, 11, 12%. So owning a home takes, it requires you to make lifestyle changes. Like a lot

00:49:23.140 of people, when they buy their first home, you can't buy the dream home. You will probably buy

00:49:27.740 something that's not as nice as what you can rent. And you may have to move into a neighborhood

00:49:32.120 that's not where you actually want to live right now at first, just to get your feet in the door

00:49:35.200 of buying your first home. But that's how people get started. Last thing I want to talk about

00:49:40.260 before we end our conversation.

00:49:41.380 So we've talked about you're finding small ways to save.

00:49:43.940 You're going to invest that money automatically,

00:49:45.920 take advantage of the power of compound interest

00:49:47.540 so that that can grow into wealth over time.

00:49:51.560 Homeownership can be a part of that as well.

00:49:53.340 But a lot of people today might have a lot of consumer debt.

00:49:56.720 So it could be credit card debt, car loans, student loans.

00:50:00.840 How do you balance paying that stuff off

00:50:03.860 while still saving for retirement?

00:50:07.640 It's a great question.

00:50:08.500 So in the Automatic Millionaire book, there's an entire chapter, there's a section on how to pay your debt down.

00:50:14.460 And one of the biggest myths or things that I don't believe to be true, I would say that, is that you should pay your debt off first and then you should save and invest.

00:50:23.080 What I've seen is when people do that approach, they get depressed and they don't see themselves making enough progress.

00:50:30.080 And so they kind of give up.

00:50:31.720 And so I teach the approach that you should put whatever you can save.

00:50:35.900 Let's say it's $100 a month.

00:50:38.040 You should put $50 towards the future, investing in a retirement account, and you should put $50

00:50:42.480 towards your debt to pay the debt down. So you're doing both at the same time.

00:50:46.300 And the reason that's important is if you can see yourself starting to build a nest egg

00:50:49.640 and pay your debt down a little bit each month, you'll see yourself shrinking your debt and

00:50:53.900 saving for the future. And that combination will be a winning combination. Now there's all kinds

00:50:59.580 of strategies on how to pay your debt down. And I teach you how to go and get your rates lowered

00:51:04.400 on your debt because it's not the debt that kills people. It's the interest rate. And so you've got

00:51:08.520 to get the interest rates refinanced. You have to get these cards down. If you're paying 20%

00:51:12.900 interest rate, it's really hard to pay a credit card off. So you have to play the game of getting

00:51:17.940 the interest rates lowered. And then I teach approach that is, I call it DOLP, done on last

00:51:23.680 payment, that you take your smallest debt. So let's say you have five credit cards. You start

00:51:28.300 with your smallest card. You make minimum payments on everything and you focus on getting the

00:51:31.860 smallest card paid off. You get that one paid off. Then you go to the second smallest card,

00:51:35.440 you get that one paid off. And that process is like a snowball approach to paying down your

00:51:39.920 debt, just like the snowball approach to building wealth. Instead of snowballing to build wealth,

00:51:44.680 you're snowballing to shrink your debt. Gotcha. And so you're doing this at the

00:51:48.580 same time as you're investing. You might not be able to invest as much as you're paying down this

00:51:51.700 debt, but what's nice about it is you do the snowball thing, this adult thing. Once you make

00:51:56.240 that last payment on your consumer debt, whether it's a car loan, credit card, student loans,

00:52:01.860 Like all that money you were paying towards paying off your debt can now go into investments.

00:52:07.460 Exactly.

00:52:08.240 Exactly.

00:52:09.260 Well, this has been a great conversation.

00:52:11.260 Where can people go to learn more about the book and your work?

00:52:13.820 Well, Brett, thank you.

00:52:14.740 I really enjoyed our time together.

00:52:16.080 They can come visit me at DavidBach.com.

00:52:19.900 DavidBach.com.

00:52:20.800 And the book again, the new book is The Automatic Millionaire.

00:52:23.140 And by the way, you go to my website, front page of the website, I have a podcast, The

00:52:27.220 David Bach Show.

00:52:28.000 I put the first three chapters of the book on the podcast.

00:52:30.540 Go listen to it for free.

00:52:31.860 and see if you enjoy it. And we've got a whole bunch of great resources and we'll have your

00:52:35.840 podcast on our website later. And yeah, I'm also on social media, Instagram and Facebook and X. So

00:52:41.160 come find me. And I'm, I'm constantly putting out free content. I don't have anything to sell. So

00:52:45.900 you know, you can get my book in the library too, if you can't find it. If you don't want to get

00:52:49.300 in stores, you can go get in the library. Go get on the waiting list. Cause I know they're backed

00:52:52.340 up right now. Fantastic. Well, David Bach, there's times been a pleasure. Brad, thank you. Have a

00:52:56.540 great day. I appreciate you. My guest there is David Bach. He's the author of the book,

00:53:00.880 The Automatic Millionaire. It's available on Amazon.com and bookstores everywhere.

00:53:04.460 You can find more information about his work at his website, davidbach.com.

00:53:07.760 Also check out our show notes at aom.is slash millionaire. We find links to resources. We

00:53:11.740 delve deeper into this topic. Well, that wraps up another edition of the AOM podcast. If you

00:53:23.500 haven't done so already, I'd appreciate it. You've taken one minute to give us a review on the podcast

00:53:27.240 player that you use to listen to the podcast. And if you've done that already, thank you.

00:53:30.480 please consider sharing the show with a friend or family member who you think

00:53:33.520 we're something out of it. As always, thank you for the continued support.

00:53:36.720 Until next time, it's Brett McKay. Reminds you how to listen to the AOM podcast,

00:53:39.800 but put what you've heard into action.

00:54:01.120 Before you go, here's another episode worth adding to the queue.

00:54:04.400 In episode number 821, we explore why routines, especially over rigid ones, can actually make

00:54:09.160 life harder, not easier.

00:54:10.980 We talk discipline without obsession, structure without rigidity, and where real growth comes

00:54:15.100 from.

00:54:15.660 You can find it at aom.is slash routines.

00:54:18.520 That's aom.is slash routines.

00:54:20.560 Go check it out, episode number 821.

The Art of Manliness - April 21, 2026

Become an Automatic Millionaire

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