As promised, here is our last detailed post about The Automatic Millionaire by David Bach. As we discussed before, the first few steps to becoming an “Automatic Millionaire” is to discover your “Latte Factor,” “Pay Yourself First,” and to “Make it Automatic”. But what happens if you have debt to pay down? Bach discusses that issue in The Automatic Millionaire.


“Automatic Debt-Free Homeownership”


For most people, their mortgage is just anther expense. It’s not necessarily considered to be a debt that needs to be aggressively paid down, like credit cards. You have a specified term on the loan, and you pay it off over that time frame. But what if you want to pay your home off early? What if you don’t want to wait 30 years before owning your home free and clear?


Bach gives some tips to achieving “Automatic Debt-Free Homeownership.” First of all, let us say that Bach believes you must be a homeowner to be rich. He doesn’t believe in renting, which as we’ve discussed before, is not something we agree with. Not everyone should be a homeowner, nor is it necessary to becoming a millionaire.


However, if you are a homeowner and have the desire to pay down your mortgage early, what steps can you take to do so? First of all, make sure that you have the right mortgage for you. Do your research. There are a lot of mortgage options out there, and you need to be sure that you are getting the right one.


Once you are secured in a mortgage and are making the payments, how can you pay it off early? Bach recommends making bi-weekly payments instead of monthly payments. For a 30 year mortgage, you can arrange with your mortgage lender to make a payment on the mortgage every 2 weeks instead of every month. If you do this, you will end up making one month’s extra payment a year ($2,000/month = $24,000/year, $1,000/two weeks = $26,000/year). What kind of impact will that have on the life of your loan? According to Bach, it can reduce your loan length by 5 to 10 years, depending on your interest rate!


Bach says that it’s possible to automate this process through your lender. If you don’t want to automate it (and pay the possible fees associated with automating it), there are ways to use this same approach through different, no-fee options.


The first is to pay 10% extra each month on top of your regular payment. The second is to pay one extra payment for the year (make sure you send it separately from your regular monthly payment so as not to confuse the bank!). Both of these approaches can save you years on your mortgage, though neither are “Automatic.”


“The Automatic Debt-Free Lifestyle”

So, what happens when you have a lot of additional debt, namely high balance credit cards? Where does that leave you in becoming an “Automatic Millionaire.”


Obviously the first step is to stop creating new debt. Once you’ve done that, you can concentrate on paying down that debt. Our favorite debt repayment plan is still the Debt Roll-Up. It’s simple and easy, and can make becoming debt-free a real possibility. Bach’s system is similar. Rank your cards in order of how fast you can pay them off (usually the smallest balance first). Then, using half of what your “Pay Yourself First” amount is, apply the higher payment toward the first card, paying the minimums on the rest. Once your first card is paid off, apply that total balance to the second. Once all of your cards are paid off, reapply your “Pay Yourself First” amount to saving for your future.


As with everything in The Automatic Millionaire, a key step here is to make this plan automatic. Bach recommends setting up a monthly payment plan to automatically pay the desired amount monthly so you don’t have to think about it.


The Automatic Millionaire


Hopefully this series has given you some ideas on how to become an “Automatic Millionaire.” Making your finances automatic can really have an impact on your financial success. Try it out! It just may give you the tools you need to be successful. And definitely check out The Automatic Millionaire.


  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.