Start Late, Finish Rich – Part Three
Fast approaching retirement age and looking for a “No-Failure Plan to Achieve Financial Freedom at Any Age”? David Bach insists it’s never too late to get rich. In Start Late, Finish Rich, he shows you how to go from eight to retiring rich.
Part Three: Save More
Most of us have heard the expression “Pay yourself first.” The thought process here is that if you don’t pay yourself first, you’ll never have enough left over to pay yourself. We have an amazing way of spending everything we have in our bank accounts. But if you’re starting late, you don’t want to pay yourself first; you need to pay yourself faster first!
One of the best ways to do this is to take advantage of a pre-tax retirement account. If your company offers one, you’d be foolish not to take advantage of it. If your company offers matching funds, you must invest at least up to the matching amount. But as soon as possible, you should maximize your contribution. Why do this instead of investing some of your after-tax dollars in another account? Just look at the math. After the government takes in taxes, you have less to spend or invest.
The next most important key is to do this automatically. If you have to physically transfer the money, there is a chance that an event will occur in your life that will swallow up the money you planned to invest. You want to make sure your savings are automatic so you can’t divert that money elsewhere.
You’re probably wondering how much you should save. Bach says you should save at least one hour a day of your income. If you’re a late starter (which you probably are if you’re reading his book!), you should save at least two hours a day of your income. He insists that it’s easier to do than you think, and that the key is simply deciding to do it.
What about budgeting? You might be surprised to learn that David Bach tells you to throw the budget out the window. Instead of focusing on what you can spend and putting limits on that, he teaches that your focus should be on how much you can save. If you take care of saving, spending takes care of itself. But you need to make sure that the savings are automatic.
What to invest in? Bach says that your life should be interesting and your investments should be boring. More money is wasted investing in the “next big thing” that somehow doesn’t pan out. Most financial experts will admit that the S&P has been fairly stable over the years. There may have been bad days, but if you average it out, you’ll find a steady upward trend. His advice is to take the ideal approach and split your investments three ways: stocks, bonds and real estate. When one goes down, another of your investments will go up. By not putting all your eggs in one basket and diversifying into these three main areas, you’ll be able to insulate yourself from those big drops when they come. I can vouch for this investment method. With the recent decline in the stock market and mutual funds (which historically don’t fall at the same time), my REIT was the only thing still making a good, steady profit.
If you own a home, you have already started your real estate investment. If equity doesn’t equal one-third of your total investments, then you’ll want to add a REIT investment to your portfolio. It provides some excellent resources for investment companies for both stocks and bonds.
If you’re renting, you’ll want to pay close attention as Bach explains why renters stay poor and homeowners get rich. It shows you how you can buy a home—even with bad credit (although you’ll pay a higher interest rate than you would if you were debt-free). Still, he insists you shouldn’t wait to buy. Tables are provided so you can see how much house you can afford. Real estate is not just a good investment; it actually gives you something to show for the money you spend on a roof over your head every month. Hiring does not.
Again, Bach insists that this should be automated. He strongly encourages (as do most financial advisors) to pay off your home in as little time as possible. By paying your mortgage biweekly instead of monthly, you can pay it off years earlier and save tens of thousands of dollars in interest.
By following David Bach’s advice on how to save more, you’ll be able to make up for some of that lost time and compound interest because you didn’t start sooner. Just putting one or two of these ideas into action will have a huge impact on how much more you’ll be able to save for retirement, so you really can start late and still end up rich!
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