Last year I wrote a book summary KEY TAKEAWAYS, Good Reads: “Think and Grow Rich.”
Who wouldn’t want to be rich? The question is, how do we make lots of money? My friends have heard me wish for winning the lotto or marrying rich, but the truth is that for years I have been following, or trying to, a simple one-step plan.
What could be better than a one-step plan? An automated one-step plan! And that is the simplicity of David Bach’s The Automatic Millionaire. What makes The Automatic Millionaire unique? No need for a six figure salary, budget or willpower. The simple solution? Create a lasting financial change to build real over time by making your financial plan automatic.
“Pay yourself first.”
THE LATTE FACtOR: BECOMING AN AUTOMATIC MILLIONAIRE ON JUST A FEW DOLLARS A DAY
We don’t need to earn a huge paycheck to become rich. It’s all the little things that will add up – like Starbucks runs. Author David Bach coined the phrase “The Latte Factor”, his nickname for wasting money on frivolous items. In his example, a person who spends $3.50 a day for a latte will use up $12,600 for coffee drinks over a 10-year period. I used to work with colleagues who paid for a latte and a pastry every morning before arriving at the office. And in the afternoons, they would take a half-hour “break” for another Starbucks run. If we do the math – at $7 a day, that would add up to $29,000 over 10 years. That’s enough to buy a new car! I’m picturing myself in a (Race Red) Ford Mustang….
“The trick to getting ahead financially…is watching the small stuff – little spending habits you have that you’d probably be better off without.”
The latte factor applies to other purchases –candy, bottled water, soft drinks, eating out and so on. I will admit, I used to have a coke problem – Coca Cola, that is. It was my typical afternoon pick-me-up, and I knew I hit a rock bottom the day I was going around to co-workers to ask for change for the vending machine to support my habit. When my last company subsidized sodas (only 25 cents!), I thought I was in heaven.
The everyday stuff may seem essential, but foregoing purchases such as lattes and sodas will save a small fortune over time. Determine your “Latte Factor” by writing down each unneeded purchase during a typical week, then multiply the total cost to see how much you could save monthly. Instead of wasting your money, invest it.
LEARN TO PAY YOURSELF FIRST
The common perception that a budget is the base of sensible financial management isn’t necessarily true. In fact, budgets don’t work because they aren’t fun. Like a dieter who counts every calorie, and thus remains constantly focused on food, budgeters eventually tire of tracking every receipt. This is also why I don’t believe in diets (or so I say).
“Any system that is designed to control your normal human impulses is ultimately bound to fail. That’s because humans don’t want to be controlled. We want to be in control. ”
Instead of forcing yourself to try to save something at the end of each month, take a few minutes to automatically deduct a percentage for savings. Open a retirement account and fund it with 10 percent of your savings. Believe it or not, you learn to live with a little bit less.
NOW MAKE IT AUTOMATIC
Remove the need for discipline. Set it and forget it. The “pay yourself first” philosophy will not work if you do not save automatically. If your company offers 401(k) plans, sign up for that. At the very least, contribute up the company’s match. And then work up to maxing out your contribution.
“Over time, money compounds. Over a lot of time, money compounds dramatically.”
AUTOMATE FOR A RAINY DAY
Besides becoming an automatic saver, it is also important to save for a rainy day. Here in California it doesn’t rain often, but when it does, drivers all of a sudden forget how to be safe on the road. But, I digress. Determine how much money you would need to cover all your monthly expenses, and then set aside enough money for at least three months. (I would recommend preparing for 6-12 months expenses, but that is a lofty goal.) Open a money market account which will provide a better return by shopping around to find the best rate. I know, it’s not as fun as Black Friday, but it’s still shopping.
“Decide how big a cushion you need. Don’t touch it. Put it in the right place.”
AUTOMATIC DEBT-FREE HOME OWNERSHIP
One of the best ways to become rich is to own your home. Numerous studies indicate that homeowners end up with more wealth than renters. Bach’s secret is to pay your mortgage on a biweekly basis. This way, you can pay off your mortgage five to ten years sooner on a 30-year mortgage than you would through normal monthly payments. Make sure that your extra payments will be applied against your principal, and also ensure that your mortgage has no prepayment penalties.
“You don’t get rich renting.”
The average American family owes $8,400 in credit card debt. Few people pay off their credit cards on a timely basis, which would be the way to avoid interest charges. Instead, many make only minimum payments each month and getting into further debt. Some steps in Operation No More Debt: renegotiate interest rates, consolidate your debt, devote half of the money you Pay Yourself First to paying off the balance, and lastly, make it automatic.
“Borrow money to make money, not to lose it.”
MAKE A DIFFERENCE WITH AUTOMATIC TITHING
The last chapter takes a step back from all this get rich talk and discusses the merits of tithing, how much you should tithe, and how to make it automatic. The more you give, the more comes back to you. This flow of abundance brings us more joy, more love, more wealth and more meaning in our lives.
“We make a living by what we earn – we make a life by what we give.” –Winston Churchill
YOUR JOURNEY BEGINS TODAY
Some scoff at David Bach’s common-sense principles. Let them. In the end, you will have the last laugh – all the way to the bank. Your journey begins with one small step. Take your first step to becoming an automatic millionaire.
To go beyond key takeaways, read The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich. David Bach shares time value money charts, explains retirement accounts, appropriate asset allocation, list of investment firms and brokerages, advice on how to pay off credit card debt and more.
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