← So Money with Farnoosh Torabi
So Money with Farnoosh Torabi
1927: David Bach, Author of The Automatic Millionaire, 20 Years Later. Why the System Still Works
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- [00:00]
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David Bach
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- [01:33]
Farnoosh Torabi
So Money episode 1927 David Bach is back. The author of The Automatic Millionaire 20 years why the System Still Works in Today's Economy.
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Verizon Advertiser
You're listening to so Money with award.
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David Bach
Winning money guru Farnoosh Torabi.
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Verizon Advertiser
Each day get a 30 minute dose.
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David Bach
Of financial inspiration from the world's top.
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Verizon Advertiser
Business minds, authors, influencers and from Farnoosh yourself.
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David Bach
Looking for ways to save on gas.
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Verizon Advertiser
Or double your double coupons.
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David Bach
Sorry, you're in the wrong place.
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Verizon Advertiser
Seeking profound ways to live a richer, happier life.
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David Bach
Welcome to SO Money. Yes, things are more expensive. Yes, with inflation is harder. Yes, healthcare is more expensive. We can go on and on about all the problems that exist today. The reality of life is this. Nobody's coming to save you financially. You are going to have to save yourself financially and it's going to get worse, not better. We live in an automatic economy right now. Let me say that one more time. We're living in an automatic economy. That economy today is making you automatically rich because you use the technology and the tools to build wealth automatically, or it is making you automatically poor because you have signed up and given people access to your income where you're paying everybody else automatically. So the key is the way your money flows. It has to flow to you from first.
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Farnoosh Torabi
Welcome to Sew Money, everybody. So I have a confession to make. Okay. For the past 20 years, there's been one book. Not 10, not eight, just one book that has never left my bookshelf. Through all my moves, through going from Manhattan to Brooklyn to now Montclair, the Automatic Millionaire by David Bach has been a mainstay. It's dog eared, it's highlighted, it's coffee stained, and if I'm being honest, it's one of the books that's helped me fall in love with personal finance all the way back when I began working as a journalist. You might remember watching David on Oprah like me and my mom, explaining how ordinary people became millionaires on modest salaries simply by paying themselves first. I was hooked. I became what I like to call an automatic millionaire disciple. And that simple idea of how you can automate your financial life so you don't have to rely on your willpower changed the way I thought about money forever. And when you ever hear me talk about the power of automating your finances, you can thank David. Now, two decades later, David has updated his classic for a new generation. The 20th anniversary edition of the Automatic Millionaire doesn't just refresh the math or modernize the tools. Although it does that beautifully, it also reflects a shift in our times. We're living through economic uncertainty, rapid technological changes, and a growing desire for purpose and peace. Mental health, not just wealth. So get ready. I'm thrilled to welcome David Bok, who helped me launch this podcast 10 years ago, Believe it or not, as one of my first guests. He's back on the show to talk about his timeless system and how it's evolved, why automation still works better than discipline, and how his own life, now living in Italy, raising two sons on the cusp of adulthood, has shaped the way he defines freedom and finishing rich. David Bock, welcome.
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David Bach
Wow, I'm joked up with your introduction and by for podcast. A lot of times you don't actually get to hear the introduction. You guys taped this another time.
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Farnoosh Torabi
I never let my guests hear the intro.
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David Bach
That was a beautiful thing to take in right now. So thank you for. I'm really blown away. Oh my God, David. And it's, it's, it's crazy how fast time goes by because we were just talking about the fact that we met at New York one in 2004. So, like, I had done Oprah. You called me, it came out. And for those who don't know New York One, it's like the local New York show here that everybody actually watched that show. I said, I don't know if the.
- [05:23]
Farnoosh Torabi
Show'S still on, but the network is still there. I don't think my little segment appears anymore. But a lot of the folks I worked with are still there. It is just class act.
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David Bach
We did our segment together, and then New York's one of those cities when you walk through the city, people stop you because they see you on it.
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Farnoosh Torabi
Yes.
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David Bach
To be here 20 years later. And I can't believe your podcast was already 10 years ago.
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Farnoosh Torabi
I know.
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David Bach
Can you believe it?
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Farnoosh Torabi
I can't believe the automatic millionaire celebrating 20 years. Take me back to the moment when it was just an idea, a seed of an idea, perhaps in your head, and then to where you're on Oprah and you're selling millions of copies. At what point did you realize, I'm onto something here with this thesis?
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David Bach
Wow. The moment we did, I launched the book on Oprah. And I think if I step back. So people thought this was my first book, Right. My first book was Smart Women Finish Rich. So I had written Smart Women Finish Rich. I had been going all over the United States teaching women how to be smarter with money and how to protect themselves and their family and teach their kids about money. That book then led all these women from all over the United States taking my classes and coming back to me and saying, how do I get my husband to do this? That led me to write a book called Smart Couples Finish Rich. Then I started doing a lot of television, and the question I was getting, all the TV shows was about debt. So that led to the Finish Rich workbook. But as I went around the country doing these seminars, literally, I would do these seminars for two or three hours. At the end of a seminar, people would come up to me and they'd say, david, can you just tell me the one thing I need to do? Just give me the one thing that I need to do. I got your book, but I don't want to read the whole financial planning book. I don't want to know. I don't want to know about life insurance and wills and healthcare. Just tell me the one thing I need to do. So I would find myself telling people over and over again, the one thing you need to do is make it automatic. What does that mean? It means you have to automate your entire financial life. And I would go through what that meant and I would say, you have to pay yourself first. What does that mean? And I would explain it and they'd say, how much do I pay myself first?
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Farnoosh Torabi
10%.
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David Bach
And finally I'm like, okay, maybe that's the book I need to write. So I started working on the Automatic Millionaire. And this book is really about a story of a couple that changed my life. Because I was working at Morgan Stanley, I had finally started to make a lot of money as a financial advisor. And what I thought was if I made more money, then I'd start saving. If I make more money, then I'll be rich. Because when I made $50,000 a year out of college, I was still broke. And then When I made $75,000 a year, I was still broke and I made over $100,000 a year. Somehow I was still broke, I had some nicer stuff, but I was still living paycheck to paycheck. And so I met this couple because couples would take my seminars, the McIntyre, McIntyre, Jim and C. McIntyre. And this couple came into my office and even stepping back a second, this couple at the end of a four week retirement planning seminar, because that's what I used to do. I used to teach these four week classes at adult schools in the Bay Area. And at the end of class a lot of those people would come into my office for a free ret retirement planning review. And usually people came in my office in their 50s and maybe their late 50s, like a couple years away from retirement. And this couple said, david, we want to come in and talk to you about retiring. And I said, how old are you? And they go, we're 52. And I was like, great, when do you want to come in? And they go, we like to come in tomorrow. It was a Tuesday. I go, what's the urgency? And Jim, I want to retire on Friday. And I was like, what? And so I said, okay, sure, you can come in tomorrow. But. But they had told me that year they had made $53,000. So I thought, this is gonna be one of those meetings. You're not retiring on Friday. I'm gonna have to work with them on a 10 year plan. That's common, right? Okay, here's where you are, here's where we need you to be, here's what you have to do. So they came into my office and they dumped out all their stuff. They had a Safeway bag with all their statements and they dumped them out on the table.
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Farnoosh Torabi
What year was this? Now, like, 19.
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David Bach
This is well before I wrote this book. This is in the 90s. So they dumped out their bag, and I had a yellow pad of paper, and I started adding up what they had. And I'm like, wow, okay, so you've got over $600,000 in your 401k plan. Oh, wow. You've got $170,000 in this and $50,000 in that. And you own your home free and clear. There's no mortgage. You have a home free and clear. Oh, you have a rental house. Free and clear. And I'm adding everything up. And they had $1.8 million. And I was in shock because here I was making over $100,000 a year, and I was living paycheck to paycheck, and. And I said, guys, I know you came here to interview me, but I have to interview you. How did you do this? And for niche said, go. This was the embarrassing part. And I go, david, we just did everything you talked about in your class, except we didn't do that budgeting thing. That thing where you talked about budget. We didn't do that because we tried to budget the first year of our marriage, and we almost got divorced over it. So we put everything on autopilot like you talked about, but we automated everything. We automated our 401k plans, our savings accounts, our security accounts. We automated for the college accounts. And that meant we didn't need a budget, need discipline. We need to spend a lot of time on it. And I was like, wow. Okay. So they left my office. They skipped out of my office. Like, not a care in the world.
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Farnoosh Torabi
Stamp of approval, MacIntyre.
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David Bach
And I went back to my office, and I stared at the wall for two hours, completely depressed, because I was just like, oh, my God, I'm not doing this right.
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Farnoosh Torabi
What a gift they gave you. They gave you the distillation of your method 100%.
- [10:53]
David Bach
This couple. That moment in time, I have my hair on my arm sticking out because it gives me the chills, because I remember it like it was yesterday, that moment changed my life. Because what happened was I realized at that moment in time that if I didn't change, nothing would change. And that no matter how much money I was going to make, if I kept my habits up, which were every time I made more, I spent more. I was never going to have the freedom that they had. What they had was not a care in the world. So I left my office. I drove home across the Bay Bridge back to the marina. I drove home in my beautiful Jaguar convertible, which was leased, brand new. I drove into my gorgeous apartment in the marina, which was rented. You following me here? I looked at what time it was on my gorgeous Rolex. Oh, Rolex, David. I had my lovely suit on. And I sat down at a dining room table in my house and opened my journal and said, today is the day you're changing your life. And I wrote to myself a letter like, david, we're done looking rich and not being rich. No more big hat, no cattle. When we go back to the office tomorrow, we're changing everything. And I did. I went back to the office. I completely changed how much I was putting in my 401 plan. I started maxing out my 401 plan. I started maxing out my stock purchase program. I basically started taking 20% off the top. And that is ultimately what would help me build financial freedom. And the thing about the Macintyre's, and this is why I think this book was so popular, is the Macintyre's were actually very much like all of our clients that we had. They were ordinary people who built financial freedom. They weren't like jet rich, yacht rich, fancy rich. They were just ordinary people who built financial freedom in the Bay Area. This couple was from San Leandro, California, but our clients were all around the Bay Area, and we had teachers, and we had firemen and policemen, and we had garbage men, and we had people who worked at Pacific Bell, PG&E, Safeway. These were ordinary. These were people making 50 to $75,000 a year. But they figured out how to live below their means so that they could have financial freedom in their late 50s and early 60s. And that's the dream. And so when did I know it was going to work? When I sat on that stage with Oprah the moment the show started. And Oprah turn. First thing Oprah said to me, we're sitting on those yellow couches. She says, david, are you trying to tell me that anyone can be an automatic millionaire if someone's living paycheck to paycheck? If someone is struggling in debt, are you here to tell me and our audience that anyone could be an automatic millionaire? And I actually said, no, Oprah, I'm not. Because the first thing is you have to want to. You actually have to want to. So she turned the audience and she's, who here wants to be an automatic millionaire? And everyone goes, I do.
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Farnoosh Torabi
There are people who don't.
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David Bach
This is actually a really interesting question. We should dig into this. So everyone says that they wanted that. And I go Oprah, they always say that and go, and here's the good news. If somebody really wants it, I can tell you, having spent the time, it was almost 10 years working with real ordinary people who become self made millionaires, I can tell everybody today what they need to do. Now, I've done this for 30 years. So anybody who's listening, if you're living paycheck to paycheck, if you're in debt, I can tell you beyond a shadow of a doubt in this podcast with 30 years experience, exactly what you need to do. The thing about does everybody really want to be a millionaire? Which we didn't dig into in that show, is that when you're in a real room with lots of people and you're on a TV show, if I sit on stage and say, does everybody here want to be a millionaire? And everyone goes, yes. And I go, great, turn to your person. Tell them that they turn to person. I couldn't. Now let me ask an honest question. Don't raise your hand yourself, but let me ask you this question. How many of you know somebody right now? Doesn't have to be you. Don't raise your hand. I want you to feel guilty. How many of you know somebody that would like just to get back to zero, Everybody's hand goes up. What do I mean by zero? Because they're in debt. How many of you know somebody who's in credit card debt or student loan debt? Their goal is not to be a millionaire. They just want to get back to zero. And start, by the way, that's a really good goal if that's where you are. How many of you know somebody that would just like to have six months of expenses set aside because if they had that, they quit their job and they have a job that they hate because their boss sucks. Don't raise your hand if your boss is next to you or watching. And so what I realized is I went around the whole country in Canada teaching Automatic Millionaire seminars is for some people, it's not about having a million dollars. It's about wherever you are in life. And I think my whole thing that I've always taught is it's actually about your values. What do you care about the most? Because when you're clear on what you care most about and you write your values down on paper, then all of these things you need to do to fix your finances become like a magnet and pull you towards it.
- [15:55]
Farnoosh Torabi
It's almost like the automatic enough, I want enough. Because that's also something we explore a lot on this episode on this podcast. But Fast forward to 20 years. So the MacIntyre's have endured. They're in the book. They are still an exemplary model for what's possible to the person who's. That was 20 years ago, David. It's harder now. It's more expensive now. Things are more uncertain now. Tell us why it's still achievable. And I think it's important to also bring in the context of what was going on perhaps 20 years ago that also felt tough and impossible. I think sometimes the generation today, the young generation, doesn't have that background, that history. They think life has never been more difficult. Everything feels impossible. And so they won't even pick up the book. They won't believe in themselves. So tell us why it is possible, even though, as you say, we're living in uncertain times, post pandemic, all the things.
- [16:53]
David Bach
It's such a good question because it's exactly where we are today. And what's interesting is every generation feels like that the only real reason I'm here is because of my grandmother. My grandmother, at 30, made a decision that she was tired of being broke. And so I'm going back to my grandmother's generation. My grandmother lived in Milwaukee, Wisconsin. She was living paycheck to paycheck. My grandmother. And my grandfather didn't have a college education. My grandfather worked in a plant. My grandmother sold wigs at Gimbel's department store. So they were just making it. And at 30, she's, this sucks. We're living paycheck to paycheck. If we don't change, nothing changes. And she started saving a dollar a week out of their paychecks. And my grandfather's like, how are we going to do that? We don't have the money. And my grandmother said, we're gonna brown bag our lunch. And she would make the lunches and give my grandfather his lunch, and she would take her lunch. This is a pre latte factor, right? So this is like, she's going to the department store now. All of her girlfriends at Gimbel's all went out to lunch together. So when my grandmother started bringing her brown bag, they teased her, yeah, what are you doing? She's, I've decided I'm gonna start saving. Why? What for? I'm gonna start saving money and I'm gonna learn how to invest. You're gonna learn how to invest? You don't know anything about investing. She said, I'm gonna learn. And the way the story turned out for my grandmother is that she became a self made millionaire over her lifetime. And so over her lifetime she would then teach my father who became a financial advisor and teach me and teach my sister and we all went into the business.
- [18:19]
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- [21:17]
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David Bach
Insurance just because it's a pain to switch.
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David Bach
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David Bach
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David Bach
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Verizon Advertiser
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David Bach
Now, my grandmother was a depression era child. So like most young people today, go Google the depression era because I don't even think they teach about it in school anymore. But when you Google depression, what would that, what was that like? People had no food. People had nowhere to live. There was a time in our country where really people were really struggling. And that generation, by the way, ended up different because my grandfather, my grandmother was saving tin foil. She was take we even when she had money. When we would go out to the early bird special, she'd take two extra things of tea and put them in her, put them in her little, a little purse to bring that home so that she'd have free tea. That was depression era at times. Now you talk about, you know what, don't you got your little latte here. Don't spend five to ten dollars on a latte. And people are like, you want me to give up my lattes. I'm not giving.
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Farnoosh Torabi
Let's talk about the latte factor. Because that has lived rent free in our minds and in our articles. It has become such cultural acceptance. Right, but then there are critics too. So tell us about why and whatever you call it today. Do you still call it the latte factor even though you wrote a book on it?
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David Bach
Hold for one second, because I'm gonna bring a prop here.
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Farnoosh Torabi
Okay? Okay. Oh, my gosh. Props on a podcast.
- [23:26]
David Bach
They'll have to cut since we're on tv, and I'll just.
- [23:29]
Farnoosh Torabi
Oh, my God. David's brought cash money to the show. Is that real, man? Is that. Are you out there? It's fake, right?
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David Bach
No, it's real. So you just asked about the latte factor. Let's talk about the latte factor. First of all, furnish. I call this a brick. Everybody check. Wait. Let's get a good shot.
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Farnoosh Torabi
Do you see that? That's actual money.
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David Bach
So that is a real brick of cash. Now, I'm not showing you this brick to show off. I'm using this brick as a seriously important critical life lesson. How much do you think that is right now? Just guess.
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Farnoosh Torabi
$10,000.
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David Bach
Did you guess because you read the update?
- [24:02]
Farnoosh Torabi
No, I see. I see the $2,000 label. I cheated.
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David Bach
So I'm holding $10,000 in cash. Now, when we did the Oprah show, the latte factor example, we actually had all these people track their expenses for a week. And then we chose somebody in the audience to show her what her latte factor was and what could happen if she would save some of the money just a little bit. Just cut out the coffee and a couple other things. And then we showed her, and Oprah took this review. There's a table like this, and she pulled this thing back, and she showed $260,000 in cash. That was like. That was the aha moment on that show. That was where people were like. And that was real cash. It's funny, because in that audience, they didn't know in the beginning it was real cash. She pulls it back, and it was. I go, guys, that's real cash. And then the audience just went, whoa. The latte factor was this idea that we waste small amounts of money on little things like latte lattes. Hold up your latte for a second.
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Farnoosh Torabi
It's actually an almond. It's an Americano with a splash of almond milk.
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David Bach
So that was 350, 20 years ago. What is it now for you?
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Farnoosh Torabi
It was about five or six dollars.
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David Bach
It's A small six dollars plus a tip. It's a small. If you go to Starbucks today, I just had the iced coffee there. They just experienced what it costs. Large iced coffee plus tip was 11.50. So the thing is crazy, the latte factor is not about the coffee. You don't have to give it up. It's about realizing that you're richer than you think. And if you're not saving money, you need to find something that you can give up to get up.
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Farnoosh Torabi
Yeah, trade offs.
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David Bach
So like this number here, I pose something like, what does it take to waste $10,000 a year? And the answer is it's $27.40. Now, is it possible that the average American who's got an income of $75,000 a year might be wasting $27.40? Now, most families are a double income household, so they're actually making over 100 grand. One in three American households right now making over $150,000 a year are living paycheck to paycheck. Seven out of ten Americans are living paycheck to paycheck. Now, the thing that blows my mind away because I like to use these props here, so I'm holding $400. Yep, 37% of Americans, according to the Federal Reserve, that's almost 4 in 10 can't get their hands on $400 in case of emergency purposes.
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Farnoosh Torabi
Cash, right?
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David Bach
Cash. Now if I go, wait a minute, 5006-007008-00900. Whoops. A thousand. Now, those of you who are listening, you can't. Can you hear me ruffling that? That's $1,000 in cash. Six out of 10Americans can't get their hands on $1,000 cash in case of emergency purposes. So what's happening in our country right now, because I didn't answer the question, yes, things are more expensive. Yes, with inflation it's harder. Yes, healthcare is more expensive. We can go on and on about all the problems that the reality of life is this. Nobody's coming to save you financially. You are going to have to save yourself financially and it's going to get worse, not better. We live in an automatic economy right now. Let me say that one more time. We are living in an automatic economy. That economy today is making you automatically rich because you use the technology and the tools to build wealth automatically. Or it is making you automatically poor because you have signed up and given people access to your income where you're paying everybody else automatically. So the key is the way your money flows. It has to flow to you first. So what that means is when you earn a paycheck, the first person who gets paid is you. That aha moment is what's changed people's lives. Now, when I wrote this book, originally, 20 years ago, the Automatic Millionaire, there were approximately 8 million millionaires in this.
- [27:45]
Farnoosh Torabi
Country, and now it's 24, so it's triple.
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David Bach
Did you find that surprising or did you know that?
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Farnoosh Torabi
I didn't know that you didn't know. I want to know how much of that jump is related to things like inflation. And maybe there's been this kind of push for entrepreneurship. And the Internet has also made it, quote, unquote, easier to do side hustles. I'm wondering if it's like multiple revenue streams. I'm not discounting it. I'm just saying I'm wondering what's really behind it. What's the biggest lesson you think hiding between.
- [28:14]
David Bach
I can tell you. I can tell you exactly what it is. So, first of all, there's 24 million millionaires right now. By the time book comes out, January 1, 2026, the number is going to be, my guess is over 26 million. We're going to see in 10 years nearly 50 million people in the United States who are millionaires. What is happening in our country right now? You guys have to hear this because we're living in this automatic economy. And I'll explain why people are getting so wealthy. If you're not investing in America right now, if you don't own stocks and you don't own real estate, you believe.
- [28:45]
Farnoosh Torabi
That some people are divesting, right?
- [28:46]
David Bach
Oh, my God. God. If you're not investing in America today, if you don't own assets, you are being left behind at a pace that is faster than we have ever seen. So one of the funds I always recommend to people to look at is the Vanguard Toll Stock Market Fund. It's like the easiest beginner fund there is. It covers 3500 stocks. And you don't have to think. You buy that fund, you got access to everything. You spend money everywhere. All those companies are inside that fund. So you. Yeah, you went to Starbucks, publicly traded. They're there. You shopped on Amazon, they're there. You're on social media. It's meta. You did a Google search today. It's Google. You went to Uber. Like, people are like, I don't know if things are going to continue really. Like, you're out there every day using these companies. Of course they're going to continue. In the last five years, that fund has gone up an average annual return of 15%. I looked up the QQQS, another great fund. That's the top hundred stocks in the NASDAQ. All the stuff's covered in the automatic millionaire. That's been 17%. If you've been in the QQQs for the last 20 years, you've had a 20% annualized return. I've had the money I put just in that NASDAQ index fund has gone up tenfold since I invested. I don't even own individual stocks.
- [30:04]
Farnoosh Torabi
Sometimes it doesn't go up. But you're talking over time.
- [30:08]
David Bach
Over time, yeah. So the answer, because again, I keep rambling here, there's two escalators to wealth. It's real estate and stocks. What I said in the automatic millionaire, why did so many people become wealthy in the last 20 years? Super simple. Actually. It's extraordinary. The stock market went up sixfold and housing prices went up almost fourfold. Housing prices. The average home was $140,000 when I wrote the Automatic Millionaire and now it's $430,000. So if you bought stocks, if you paid yourself first, if you use a 401k plan and you bought a home, you know you bought a home, right?
- [30:42]
Farnoosh Torabi
Yes.
- [30:43]
David Bach
You just. I remember when Covid happened, I was like out there telling people, now's the.
- [30:47]
Farnoosh Torabi
Time to buy a house with rates so low. So a question about that. I want to. One of your other aha moments, in addition to automate your finances, pay yourself first. One of the things you talked about on Oprah was this. Paying your mortgage twice a month, every two weeks. So you end up with a 13th payment. And that can not only reduce the amount of interest you pay, but you can own your home fully quicker, become a millionaire quicker. Is that still something you recommend for folks who have, say, a 3% or less than that mortgage rate rate?
- [31:18]
David Bach
If you have a, if you're one of the fortunate people that got those low mortgage rates, then I would say no, that's a low rate. Come on, you can stick the money in the money market. Right. Account right now and get 4% rates. You're going to come out down though.
- [31:30]
Farnoosh Torabi
So it's all math.
- [31:31]
David Bach
It's all math. If your mortgage is 7%, it's a no brainer 5%. Look, the faster you pay your debt down, the faster you're free. So there's nothing wrong with when people did these mortgages with these low rates. 15 year mortgages were amazing because you could be literally done in 15 years. Yeah, I Think all these ideas, they seem so simple that you can blow right past them. So let me ask you a question, because you said this book impacted you, and I'm always curious, what was it that impacted you and what made you make changes?
- [32:02]
Farnoosh Torabi
Honestly, it was two things. It was paying myself first, which I was not doing in my 20s. I was paying everybody else and myself last, and investing. I didn't think that I had the capacity to invest. I thought that I had to wait until I was making more money and that. That I wasn't taking myself seriously as an investor. I was somebody who was earning, paying off her debt and spending and saving a little bit. But investing, my gosh, that was a very graduated concept to me. And you gave me permission to go in that realm. And I started investing in my 401. I started earning the match, that same job that I was at where we met. I started investing in my 401k there. When I left, I had about $30,000 in a retirement in my early 20s. If you had asked me to do this on my own willpower, never. I'm not kidding. I mean, what more do you want to hear? That literally set me up for so much success. It gave me the confidence. So when I went into the next job, opening up a 401k was not anything I questioned. Absolutely. Sign me up. Let's double down. And as I also started to get more into the world of personal finance as an expert, I asked you to endorse my first book. You said yes. Yes. It was like the quickest reply I ever got to an email, which for anyone who knows when you're going out for blurbs for your worst, it's the worst. And no matter how many books you've written, no matter how successful you become, that ask just feels so gutting to me.
- [33:32]
David Bach
At least, by the way, to me, too. Yeah.
- [33:34]
Farnoosh Torabi
It's just, you don't want help. You want to feel like you can do this all on your own. There are gracious people out there. And then I started to really just love you as a person. I was like, he's not only a great expert, he's like a good human, which, you know, you walk this earth. It's not always the combination.
- [33:49]
David Bach
I really appreciate that, and thank you for sharing all that. I think the thing I'm curious about, I'm always curious what makes somebody make the decision, because to me, lots of people hear me on podcasts or read my books, and then it's the difference in people's lives are a result of did they make a decision?
- [34:08]
Farnoosh Torabi
I was afraid, I will say I wrote a book about fear, the healthy state of panic. I think I was really afraid of arriving at a place in 10 years and going, what was it all for? I have nothing to show for it.
- [34:21]
David Bach
Oh, God, that's so good.
- [34:22]
Farnoosh Torabi
Like, I really. I had to fast forward it.
- [34:25]
David Bach
Fast forwarded 10 years. Yeah, see, I think so good.
- [34:29]
Farnoosh Torabi
I would see women in my office get pregnant, David. And then never come back to work because. And have nothing in savings and feel as though. So they just lost all this momentum. They couldn't negotiate, they had no financial power. And I didn't want to be in that compromising situation. I knew I wanted a family and I wanted a big career. And I knew something you said very early on is it's your responsibility to protect your finances. No one's going to show up at your door and say, here's how you should do it and here, let me do it for you. No one cares about your money more than you and I. That switch went on in my early 20s, listening to you and just reading a lot about personal finance. And I just realized I'm afraid. So the best way to meet this fear and have a relationship with it that's healthy is to start answering questions for myself, start making some moves, little ones, little step ups. I don't have to change things overnight. But compounding, oh my God, that power.
- [35:29]
David Bach
I told you, I was with mel Robert Evans 2 days ago and we talked about. I'm like, look, if you can't start because I recommend $1 a day of your income in terms of savings, that's 12 and a half percent of your gross income. And she's, okay, what if I can't do anything? I go, then you can at least do 1%.
- [35:42]
Podcast Sponsor/Advertiser
At least.
- [35:43]
Farnoosh Torabi
Yeah.
- [35:43]
David Bach
And then if you do 1% in January, the reality is you'll realize it didn't affect you at all. And then you could go up to 2%. And if you did 1% a month for a year, at the end of the year you'd be at 12%. You'd be like, oh my God, I did it. I think what's so unique about you and it's so rare, as you did in your 20s, right? Because when you look at the compound interest charts, anyone who starts in their 20s. I started taking this $10,000 example and then I didn't finish the story. It takes $27.40 a day to blow $10,000. If a person takes this $10,000 and starts investing it a year. So they invest $27.40 a day in their 20s. By the time they hit 60, they have over $4 million. It's actually $4.4 million in savings, $27.40 a day. So someone who. They should, like, literally go run and start doing these things. But what happens is. And they're people, typically, and this is why you're rare. Typically in their 20s, they hear about this stuff. They hear about it. That's it. They don't do anything. In their 30s, they start thinking about it. Then often in their 40s, they worry about it. And then their 50s are hyperventilate because you do all these podcasts. People are like, I'm 50 and I'm just getting started. Okay. It's not. There are things you can do. It's not too late. You can start making $20 a day can make a huge difference in your life.
- [37:00]
Farnoosh Torabi
Not going to regret that.
- [37:01]
David Bach
But it's all easier if you start in your 20s and your 30s. I have charts in this book where I show the classic Roth IRA charts. Like, this is the chart that changed my life was the chart where it shows what happens if you save $3,000 a year starting at 15. It shows the person saving from 15 to 19 never save another dollar.
- [37:21]
Farnoosh Torabi
Right?
- [37:21]
David Bach
So they put $15,000 away, and because of compound interest at 10%, by the time they hit 65, they've got $1,615,000 they only saved from age 15 to 19. This person goes and starts saving at 19 to 26. They do well, too. They just don't catch up. 1,552,000. This person starts at 27, saves all the way to 65, and they've got 1,324,000. I started. James, who's 15, he got his Roth IRA at 2012. So I'm putting $7,000 a year in these Roth IRAs.
- [37:56]
Farnoosh Torabi
And that's because he was like an employee of your company.
- [37:59]
David Bach
Exactly.
- [38:00]
Farnoosh Torabi
Okay. He did that whole strategy.
- [38:01]
David Bach
Yeah. And so he. So I showed him, by the way, go to investor.gov, use the compound calculator. I've shown my son, like, Look, James, $7,000 a year. You're doing this every year until you hit 60. At 60, you have over $11 million.
- [38:17]
Farnoosh Torabi
Oh, my God. Some people believe in this coast fire. Have you heard of coast fire? You hit a certain amount of money in your investment account, and then you're like, I could just let compounding do the rest. I don't have to continue contributing that's.
- [38:28]
David Bach
Called retirement, what's it called in Coast?
- [38:31]
Farnoosh Torabi
Or you could be like if you started in your 20s, right, and now you're 45 and you've hit maybe that million dollars in your Roth IRA or whatever it is, your 401k that just investing for another 20 years following the market. It is your work done essentially contributing to your retirement account.
- [38:49]
David Bach
It could be because you can run your numbers with a basic financial plan today with chat GPT and you can take a look at it and go, look, that could be enough. I think what happens when you start investing early is that you actually get the opportunity to take many retirements. So I think that there's an I talk about in the update. I think it's a big mistake to work all the way till the age of 60 or 65 and then retire. I think people should take break breaks. I think a lot of people would love a mini retirement. And the way you take a mini retirement is you start saving and then you put some money aside so you can take a one month or two month or three month break. I call it a sabbatical and you have a mini retirement and it completely regenerates you and rejuvenates you and reboots you and then you've got energy and excitement to go on for another 10 years.
- [39:34]
Farnoosh Torabi
So this transitions us, well, to talking about your life in Italy, which began as an idea where you were going to go for a few like nine months or something and now you've been there five years. What has living abroad taught you about wealth in ways that you wouldn't have necessarily experienced here in the States?
- [39:56]
David Bach
Wow, okay. A lot of things. First of all, I came from New York City and it's so good to be back in New York City. I was just telling you walking over here, I was like emotional because I think in my heart I've always been in New York. At 19, I said to my dad, someday I'm going to move here. And I did. And I spent 18 years here. And this was the city where I came to make all my dreams come true. That's why I was able to do these things, because I was able to go on all the national TV shows and be here where all of the action was. And then one day I was like, you know what? I want to take my kids out of New York City, move them abroad for a year so they have the international experience and they see the world before they go to college. So we moved to Florence, Italy. It's a remarkable city. Italy is a remarkable Country. And I think what I learned in Italy is how to slow down to the speed of life. Because in New York, we're going so hard so fast all the time. And in Italy, it's actually about really doing what we're doing, connecting, having long lunches and long dinners and family and conversations. It's a slower pace. And people have. A lot of people have less money, but they have bigger lives. And I think the thing I saw in Italy is, like, there's a lot of ways to live. I think my perspective has changed, and it's even changed for my kids because I'm like, look, you guys, this whole thing that your dad does where he talked about living rich now, I don't have the answer for you as to how your life should look. You're going to need to figure that out. They've now lived in Italy. They've grown up in New York City. There are a lot of ways to live your life, and the most important thing is to live a life true to yourself. And when we first moved to Italy, I was explaining to my young kids at the time they were 15, and I think James was 9. I'm like, one of the differences between America and living in New York City and coming to Florence, Italy, is you'll see that in New York, we all basically live to work. Now, partially, it's because it's so expensive, but that's just the energy here. This hard city retiring because everybody's working. I took a year off here, and nobody could hang out with me because they were all working in Florence, people just. They work to live. It's a different. It's a different mindset. When I talk about things like sabbaticals in Europe, that's just called a summer.
- [42:06]
Farnoosh Torabi
It's called August.
- [42:06]
David Bach
It's called August and people. It's hilarious. That's not really true anymore. No, it's actually really true. All over Europe, things just close down for the month of August and people go to the beach. And it's not about work all the time.
- [42:18]
Farnoosh Torabi
And so how did that show up in the latest edition? Your life experiences over the last five years must have informed some of the rewrites, right? In the Automatic Millionaire or the updates, at least.
- [42:30]
David Bach
Yeah. So the end of the book has got a whole Q and A with. And I talk about a lot of these things. I really believe that people should retire. They can retire sooner. They should retire sooner. I'm really lucky that I got to go move to Italy and basically slow down in my mid-50s. Sadly, I've had three best friends already die. So I'm 58. I talked about the average age of widowhood and smart women Finish Rich. It's 59. I've had three of my best friends. One best friend from high school, two best friend from high school and one best friend from college have already passed away. And, and I hear people talk about this idea that you should, people should work until they're 70. Like really? Because I spent my lifetime doing retirement planning. And I can tell you I know firsthand the 60s look much better than the 70s. In the 60s you have your health, you have your energy, you hopefully have your spouse, your family's still around, you have your time. And so that's a great decade to be retired and enjoy your life. People wait too long. Long. And then the other thing I've realized is people wait too long, start spending money. It's ironic because I've spent so much time helping people save for retirement and now what I'm realizing is people are not actually using their money to enjoy it.
- [43:40]
Farnoosh Torabi
Yeah.
- [43:40]
David Bach
So one of the things I know this is what really hit me when I updated the book was that there's $44 trillion in retirement accounts. 44 trillion that's in the United States. That's basically one out of every three dollars in America is now in a retirement account. How do we know this has worked? We know it's worked because have been saving money automatically now for the last four decades. And now there's $44 trillion with a T in these retirement accounts. The thing that I realized in updating this book and I've been thinking about this for five years, is people aren't taking the money out of these retirement accounts, which is what are they doing? They're leaving it there until they hit RMD age. RMD age is required. Mandatory distribution age which was 70 and a half and now it's 73. So they're leaving it in their retirement accounts using everything else. Because the financial plan and the financial planner, all plans have been designed to take IRA money last. Why? Because nobody wants to pay ordinary income tax. So the money is growing tax free, but it's not getting enjoyed and used. So the idea that I have is that we should actually change the tax laws around retirement accounts. We should have a eight year window like a new tax policy that you could take money out of your IRA account starting at age 60 for that eight year window and pay a flat tax. And so we've run a lot of analysis through all the AI engines now because we can do this with deep research. And I've actually got a whole. I'll have a new website up. It's going to be@iraflattax.com you can go to davidbock.com when this podcast comes, comes out. And we've run through AI and we've used ChatGPT and Perplexity and Gemini, and we've created Notebook. LM on this. This idea of analyzing what could happen in the United States if we gave 73 million baby boomers a break on the taxes on their IRA account. And I think it would be remarkable because I think it would release a lot of this money just sitting there into the economy. Into the economy. And there's so many wins. It would improve the psyche of baby boomers. Right? Imagine 73 million baby boomers all of a sudden are like, huh, maybe I should take some money out of my IRA account. That's a big tax break. What would I do with it? Maybe what they'll do is keep exactly the same investments that they have. Or maybe what they'll do with it is go have fun. Maybe they'll go on cruises, or maybe they'll buy a second home, or maybe they'll help their kids to buy a house. My grandma used to say, money's like manure. If you leave it in one place, it starts to smell. If you spread it around, things start to grow.
- [46:13]
Farnoosh Torabi
I used to work with Jim Cramer, and he would say, pigs get slaughtered. In other words, like when you get. When your portfolio gets bloated, time to sell, maybe, and reinvest. I love that idea. I think that's brilliant. From your lips to Congress's ears. Yeah.
- [46:28]
David Bach
The president, Congress. I'm not a lobbyist and I'm not running for politics. So I'm gonna put this idea out there, and then I'm hoping the conversation will get other people talking about it. And I will tell you, things have changed so much in the last year because. Because the reason I think that anything is possible now, Trump was at an event and someone was like, how about no tax on tips? And he was like, you know what? We should look into that. Now we have no tax on tips. Somebody else said, how about, why don't we have a deduction on car loans? We have deduction on housing mortgages. Good question. We should look into that. Now we have that. Then people are like, we should have no tax on Social Security. We're gonna end up having no tax on Social Security already. Now, 83% of people who get Social Security checks do not have Taxes. And now even Democrats, there are Democrats right now, have just come out with proposed legislation to remove taxes on Social Security.
- [47:18]
Farnoosh Torabi
Brilliant.
- [47:19]
David Bach
Brilliant.
- [47:19]
Farnoosh Torabi
That doesn't make any. Why would you get, it's like double tax. I don't understand.
- [47:22]
David Bach
So I think that you're paying into this tax and then our country's ready for new ideas. And this idea, by the way, what it does is it brings money in the government too, because it pulls forward tax dollars. The government's budgeted for when money's coming out at rmd, but it pulls forward tax dollars. So even though the tax dollars are less in the beginning, it pulls dollars up front. Right? So like in the next eight years, people start pulling money out of these retirement accounts, the government gets tax dollars. Then it goes into the economy, economy grows. Based on the different analysis, it says the economy could grow by a quarter to 1% annually. GDP trillion dollars goes back into the economy. It's a big idea. And also it's not just for baby boomers because if you do this idea the way at least I think would be useful to do, I would start it off with an eight year plan because that incentive incentivizes people to do it. It also incentivizes people in their 50s because if you're 53 or 54, 56 or 57, 58, 59, and you know, okay, well I'll use all the catch up provisions. I'll put more money away in a retirement account, I'll take the tax deduction as fast as I can and then I'll take my money out at 10% or 12% or 15%, depending on what the government decides to use.
- [48:36]
Farnoosh Torabi
Okay, couple more questions. Let's talk about AI a little bit because the automatic millionaires. Did you ever think we'd be in a world where you would be coming out with the 20th anniversary in a time when it's not even just about automation now it's about we have artificial intelligence. How can AI facilitate our ambition to become an automatic millionaire?
- [49:00]
David Bach
AI is going to change everything, right? And that's the thing that everybody says, we all know it's going to change everything. We just don't know what it's going to change. It's going to completely change financial planning. It'll make everything better and easier. You think so? Completely. It's already changing health faster depending on your doctor. I, I work with a company that's using AI now for medical and the review meeting that I had with my doctor who's now using AI technology was, it wasn't A little bit better. It was like 500 times better. They had taken my blood work. AI, he didn't. AI analyzed my blood work over three years. Years. Then told the doctor, these are the things that are going well. These are the things that need improvement. So when I had my annual review, it was so thorough. And that's just the beginning days of this. So when you go to financial, we're not here yet, but in another two or three years, I gotta think every financial advisor firm is gonna be using AI, and I think that you're gonna be able to go in and just ask a bunch of questions. People are already doing this, right, going into ChatGPT and asking questions. But I think it'll be much simplified. Investing's so much easier now than it 20 years ago.
- [50:07]
Farnoosh Torabi
You don't have to pick your stocks.
- [50:09]
David Bach
Oh, my God, there's index.
- [50:10]
Farnoosh Torabi
And people haven't gotten that message. People still think I can't start investing because it's going to require so much of me. And I'm not an expert.
- [50:18]
David Bach
See, I don't. And I don't know how people still think that. But when I. When I started doing these classes, like the class that the McIntyre's rim, I used to say, I will work with anyone. If you have $50 a month, because that was the minimum amount you needed, I can open up an IRA account for you and I can help you invest on it. Automatically. You would come in my office, varnish. The paperwork was six pages long. It took 45 minutes to go through the paperwork, get a voided check, staple it, send it to the bank. Took three weeks to set up a systematic investment plan. Today you open up an app like Acorns. Okay, so talking about how simple this is, you can open up an app like Acorns and you can be investing your change. Like in 10 minutes, you can go click, open up an account, save whatever you want. A dollar, $50, $100 a month, automatically. Financial. The ability to build wealth today is democratized.
- [51:13]
Farnoosh Torabi
Oh, yeah.
- [51:15]
David Bach
You just have to go access it.
- [51:16]
Farnoosh Torabi
You have to want it.
- [51:17]
David Bach
You have to want it, and then you have to do it.
- [51:20]
Farnoosh Torabi
Do it once, though, and then the rest is done for you. Automatic. So before we part ways, where are you headed? What's next for you?
- [51:31]
David Bach
I'm gonna go do a handful more podcasts. I'll see our friend Marie Farleo next week. And then I am headed to Chicago to go see my family. And then I'm headed to Arizona to do an event with Joe Polish at the Genius Network.
- [51:44]
Farnoosh Torabi
Oh, you mean as you approach your 60s and you have this legacy, we'll.
- [51:48]
David Bach
Delete all of that?
- [51:49]
Farnoosh Torabi
No, that's good, that's fair. You obviously have a book tour, of course. But as you think about your legacy and as you enter this new era, this new decade soon, what do you.
- [52:00]
Podcast Sponsor/Advertiser
Want it to represent?
- [52:01]
David Bach
Okay, so that's a really good question because as I've said, I'm retiring. So this is my wrap up tour. This is my last financial book. These will be the. Probably the last podcast I do.
- [52:11]
Farnoosh Torabi
You gotta have a party, right?
- [52:12]
David Bach
I really do need to have a party.
- [52:13]
Farnoosh Torabi
You need a party. Let's talk about that.
- [52:15]
David Bach
And I have a plan one. You're right, I do need to have a party. I am. I'm gonna go work on the next version of me, I think. So I'll be 60 next year. And I want. My goal in life is I want to start working on. On the version of me that when I'm 70, I can look back and be proud on those 10 years. And I want to be proud of having done new things. So I've been doing this for basically 30 years of my life, which has been the greatest gift of my life. I wanted to spend my life teaching people how to be smarter with their money so that they could be free.
- [52:46]
Farnoosh Torabi
You did it.
- [52:47]
David Bach
And I did. I've loved every moment of it. And now I want to go see what else I can do. And that's not necessarily work related. That might be cooking school or skiing a lot. Lot. Or painting or DJing, I don't know DJing. So I got these things I wanted. DJ Bach, DJ Dave. DJ Dave. I and I spent the ski season in Verbier last year. I skied 78 days. So I'd like to continue as long as my health is good at skiing and spend as much time as possible with my kids as they will want to spend with me. And spend as much time as I can with Alicia and travel and come.
- [53:17]
Farnoosh Torabi
To New York because I think one of your sons will be here. So hopefully I'll get to see you more often. I can't wait. This has been a really special moment for me and I'm so thrilled for you and everybody who's going to get a chance to read this again or for the first time, the automatic millionaire. Congratulations, David Farnish.
- [53:36]
David Bach
Thank you. I really appreciate it. This has been so fun.
- [53:52]
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- [54:21]
David Bach
Hey, this is Paige from Giggly Squad.
- [54:23]
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