As I mentioned in an earlier post, I’ve been enjoying quite a few audio books in the car this past month. In particular, I’ve been listening to audio versions of David Bach’s The Automatic Millionaire (TAM) and Smart Couples Finish Rich (SCFR).
I was hoping for some kind of major financial revelation in TAM, but what the four hours of anecdotes, catchy phrases, and motivational chatter amounted to were these simple points:
- You don’t need to have a high income in order to become a millionaire by the time you retire. His example couple on disc 1 made only $53,000 a year combined, and they were retiring in their early 50s with two homes, two cars, and a boat all owned free and clear and more than enough in their savings and investments accounts to support them through their retirement years.
- The reason most Americans aren’t millionaires isn’t how much or little they make, it is how much they (stupidly) spend.
- If you can find a way to save (e.g. not spend/waste/squander) just $5-$10 dollars a day and put it in a retirement account, you can achieve this goal.
- Ideally, you should put at least 10% of your gross income into a retirement account (401(K), traditional IRA, or Roth IRA) invested in growth stocks or mutual funds if you want to be self-sufficient/lower middle class when you retire.
- Increase the amount to 20% or more if you want to bump your lifestyle up to upper middle class/affluent when you retire.
- Pay yourself first (contribute to your retirement accounts before you do anything else)–always.
- Stay out of credit card debt.
- SAVE for even big purchases like vehicles and vacations and pay cash.
- A home mortgage is the only acceptable form of personal debt (e.g. not related to growing or improving your business, which is not covered in this book).
- Buy a house as soon as you can instead of throwing money away on rent.
- Pay off your mortgage early by making one extra payment a year or switching to a bi-weekly payment schedule.
- The key to succeeding is to automate as many aspects of your finances as possible, starting with a regular, systematic deposit into your 401(K) or IRA retirement account(s) and continuing all the way through your mortgage, bills, non-retirement investments, and regular savings.
- Your Latte Factors are any regular, small, non-essential expenses or extravagances that eventually add up to much more money than you think. Examples given in the book are a morning grande latte and muffin from Starbucks ($5), protein bar and smoothie snack ($8), restaurant or take out lunch ($8), and two movie rentals in the evening ($5). That’s $26 a day. Multiply that by 20 working days a month. Faint when you realize you are squandering $520 a month ($6240 a year) that you could be putting into your retirement accounts.
- Track every cent you spend for seven full days to discover your spendthrift Latte Factor if you believe you can’t possibly save $10 a day.
These are all very good points, but there was nothing new here for me. I love how-to books and classes that fire me up to take action, so it was kind of deflating to realize that I’d already done just about everything Bach was telling me to do and therefore had no immediate, financial-future-changing step to take. I didn’t even need to listen to the motivational/explanatory portions of the book meant to convince skeptical financial slackers that debt was bad and that this regular saving and investing stuff worked; Mommy Wang taught me this when I was oh, six years old and purchasing my very first savings bond with my carefully-hoarded birthday money.
The first of the two action steps I can still take is to cut back on credit card use even though I pay off my balance every month and switch over to using my debit card for most purchases. Of course, my propensity for buying things online makes this problematic because I do not like to have my debit card number, which links directly to my checking account, stored in some merchant’s remote database. If an error is made on a credit card purchase, I can always dispute it without any financial hardship or penalty. If an error is made on a debit card purchase, I am SOL when it comes to my checking account until things are cleared up.
The second action step I haven’t taken personally is purchasing my own home. The townhouse is in Chris’s name only, so my contribution to the mortgage payment is technically rent. I could pick up a property in my own name using my VA loan guaranty benefit pretty easily, but unless I rent it out, I can’t afford to chip in for the townhouse AND make payments on my own property, and Chris can’t afford to cover 100% of HIS mortgage on his own. With this step, I am in a holding pattern for now.
The information in the book may be old hat for me and most people reading this blog, but that doesn’t make it any less valid. Just because the steps Bach recommends seem painfully obvious and, well, “been there, doing that already” to me doesn’t mean that everyone will see it in the same way. I know many, many people my own age and younger who could benefit from listening to this audio book on the way to work. The only problem is that, like getting into physical shape, the desire to get into financial shape has to come from within.