Smart Couples Finish Rich: Step 4 Review
Each Friday for ten weeks I am reviewing a chapter of David Bach’s Smart Couples Finish Rich. The introduction can be found here, the review of step 1 here, step 2 here, and step 3 here.
This is it! Step 4: The Couples’ Latte Factor. This is what David Bach is famous for, right? The whole ‘the lattes you drink every day are costing you retirement’ idea. We’ve been really tracking our spending for a while now, and although we did have a “latte factor” in our lives before the tracking began (although it would more appropriately be called the ‘Target’ factor) and it was larger than I thought it was, it still was not very big. Maybe $200/month in a good month… maybe. And that includes *all* unnecessary spending. That’s how much more we seem to be able to snowflake now that we do nothing, go nowhere, and spend nothing. Heh. So… we’ll see.
The chapter starts stating “The problem is not our income… It’s what we spend!“. Save $10 per day - look at your spending and just find $10/day to save. Society is now designed to help you latte your future away, meaning that it is so easy to spend a little here, spend a little there, and not notice the damage it is doing to your finances. There are charts illustrating the miracle that is compound interest, and how with time, your $10 a day can turn into a whole lot more (especially over a long time… makes me want to force my children to open IRAs at 14 
). Then, the challenge - track all of your spending for 7 days. This is how you’ll start to find that $10 a day to save.
Well, it is not that I disagree with the premise that the problem is not our income, it is what we spend. But… really. I found some of this a little irritating. The example Bach uses for the couple who can’t save $10 a day - are they for real? I mean, they were frittering away $80 or more each day on lattes, muffins, lunches… do these people *really* think they aren’t spending any money they can save? Even before I started this huge debt reduction kick - I wasn’t buying lunch and a latte every day. Not even close. So… I wish there had been more realistic examples, the one in the chapter really seemed a bit over the top.
I’m still not convinced I’ve found $10 a day. That’s $300 a month and even with this clamped down no spending budget, I’m not coming up with that. But - once the debt payments are gone, it’ll be a whole lot easier to see that. I already do the challenge - we track all of our spending and have every day since July 1st, so hey, I’ve done Step 4! (Still not done with step 3… oops). So the take home lesson - get the debt abolished as fast as possible so I can start saving money towards retirement. I hear that loud and clear. Every day is a day less I earn compound interest.
Next week goes into that in even more detail, because Step 5 is Build Your Retirement Basket. We’re building it slowly but I am sure we need to step it up.
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October 12th, 2007 at 12:43 pm
Good review.
You’re right that the examples he uses aren’t very realistic. The “latte” factor really only applies to people who don’t save a single penny - in your case you are already saving tons which mostly goes into your debt repayment.
Mike
October 12th, 2007 at 3:32 pm
I can’t work with that save $10/day principle. One simple reason:
What counts as savings?
Unless I’m like that wild couple, I can’t be sure. I have self-control; I often think “Hmm, I’d like to buy that” but don’t. Should I count every time I don’t buy something as savings? That doesn’t work. It’s not really saving me money because I wouldn’t buy it anyway and we all do that with things we won’t buy.
And I don’t have any really expensive habits. Certainly nothing that could cut out $10/day. Rent costs $700/month, it’s the only thing on which we spend over $10/day. Even grocery budget is less than $300. That includes household supplies as well.
Maybe if they set a monthly goal, then those of us with budgets or budget ideas could do it better. We could say “Ok, we want to save $300 more than our usual amount, which is $500, so let’s see if it’s feasible.”
Same goes for no-spending days, unless they’re about purposely not celebrating black Friday. I have lots of no-spending days. Sort of. I recharge my metro card twice/month, but each day I metro to work am I spending money? Or just those two times? And what about eating food I’ve bought?
Long comment, sorry. But I find such things difficult. They’re only really directed at people who are making large and useless purchases daily. Or frequently. For the rest of us, they’re just a potential headache.
October 12th, 2007 at 5:12 pm
$10 a day, that’s like £150 a month, and my entire discretionary money is only £370 - which includes food, clothes, haircuts, going out…
I guess I could probably find £150 a month if I really needed to but not in the form of $10 a day. Most days I don’t even spend that much.
October 13th, 2007 at 11:36 am
I actually know several people who don’t save any money. Maybe they’ll have the 401K plan set, but that’s about it.
I think it goes back to the principal of telling yourself “NO!” I’ve found that a lot people don’t do that. They’re the ones spending $50 a day on their Starbucks, lunch, a new journal, a movie, and snacks at the theater. If they just said no to one thing, they’d end up saving without even noticing.
October 15th, 2007 at 3:52 pm
I think Mike is right and basically the whole $10 a day is for completely unaware people.
Setting savings goals and meeting them is much more important imho.