I’ve Paid For This Twice Already…

Archive for the ‘books’ Category

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, step 3 here, step 4 here, step 5 here, step 6 here, and step 7 here.

Have you made one (or more) of the ten biggest financial mistakes couples make? I am hoping that my spouse and I haven’t as I explore Step 8: Learn to Avoid the Ten Biggest Financial Mistakes Couples Make. I’m figuring that our lack of money might both help us and hurt us here – we don’t have a lot of money saved or invested, but we also haven’t had a lot of money to play investing games and take big gambles with. I figure – we’ve either made very few of the mistakes… or we have made a whole lot of them. I’m hoping for very few. So what does Bach consider the ten biggest mistakes couples make?

1. Having a 30 year mortgage.
2. Not taking credit card debt seriously.
3. Trying to get rich quick by day-trading.
4. Buying stocks on margin.
5. Not starting a college savings plan soon enough.
6. Not teaching your kids about money.
7. Neglecting to sign a prenuptial agreement.
8. Not having a greater purpose than the two of you.
9. Not figuring out who’s responsible for what.
10. Not getting professional financial advice.

So a lot more “not’s” in there than “do’s” – basically the take home message to me was the biggest financial mistake a smart couple makes is to neglect to act. The book goes into detail on why each of these is a mistake and steps on how to correct it. Which mistakes have we made?

1. We have a 30 year mortgage. The book says if you already have it, keep it and accelerate the payments. But not yet, because…

2. We did not take credit card debt seriously enough in the past. Which is why we have so much of it still today. But we’ve learned our lesson on that one!

10. Not getting professional financial advice – well, we haven’t. Maybe we will when we’re out of debt and have something past that to talk about.

We’ve never played the market so no on 3 and 4, 5 is questionable because we have college accounts but I haven’t made smart moves with them yet and opened 529s, they are in ING savings accounts right now. And 7 doesn’t apply to us – we both came into marriage with no assets. can’t take nothing away from each other! Heh.

You may not agree with all 10 – I know that a lot of people think 30 year mortgages are grand (I am undecided on the issue as of yet), but the list did make me take stock of a few things and reflect on a few as well.

Next week we finish the book with Step 9: Increase Your Income By 10% in 9 Weeks. Well, if some employment pans out for me in 9 weeks… that’d be easy. Heh. But I doubt that is what will be in the chapter. I think my spouse is supposed to ask for a raise. See you then!

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, step 3 here, step 4 here, step 5 here, and step 6 here.

It’s time to dream again! Or so says Bach in the beginning of Step 7: Build Your Dream Basket. Kids are full of dreams and desires for the future, and somewhere on the way to adulthood we lose that, and Bach says, no more. I must admit when I looked at the title to this chapter I thought “I am having enough trouble figuring the other two baskets out, there is no way there is anything left for the dream one… ever.” Especially with the recent change in my situation. But, read on, for Bach gives me a glimmer of hope. It is all about the mindset, not about the specifics.

Bach starts the chapter telling us to figure out our dreams – individually and then with our partner – because without a dream for the future, life doesn’t seem compelling enough to save for. Each of us should individually come up with our top five dreams, share them with our partner, and then start saving for them, and in doing this we answer the question “Why invest?”. For our dreams, of course!

Bach outlines a systematic investment plan – basically, if we don’t save automatically through an automatic deposit every week or month, we won’t do it. How much of your income you save is up to you but Bach suggests 3% of your take home pay as a starting point. 3% is small enough, he claims, that most people won’t be able to argue they can’t afford it. You could also start it at 1% and increase it by 1% every six months, and that way, you’d barely notice it. The rest of the chapter is devoted to options for investing your dream money. For a short-term horizon of less than 2 years Bach recommends a money market account, and for the long term he talks about an array of options from stocks to mutual funds.

So… easy, right? I found the process of creating a dream list much easier than I thought. There is a chart where you can do a timeline, costs, etc and relate it to your value circle but I’ll just list the actual dreams I had here:

• Save $20,000 for each of my children’s college costs
• Go on an Alaskan cruise with my spouse
• Spend an entire weekend with just me and the spouse, no kids
• Open a taekwondo studio
• Become world champion in weapons in my taekwondo style
• New floors in my downstairs hallway and bathroom

I don’t talk a lot about taekwondo here because doing so would compromise my anonymity (I am world-ranked in weapons and have been in the past in both forms and weapons for my age group) but competing at that level has a significant cost, and I have basically put those dreams on hold while we sort out our financial mess. But somehow even with the limited competing I have been doing (at local tournaments where I am required to attend because I am on staff and have an actual job to do there beyond competition) I have found myself in the top ten world rankings in my age group. If that continues, come time for the worlds competition (not until June) my spouse and I are going to have some serious discussions about if I should chase that dream again and spend the money for me to travel to the world competitions and try to become world champion. But for now I’m not actively pursuing that dream.

The weekend alone might seem simple but without any family close by, it becomes a lot more costly. I love my kids to pieces but sometimes I would just like a little more sleep and a little less “Mommy, mommy, mommy, mooooooooommy…..”.

But enough about my specific dreams. I haven’t had my spouse do this yet, but I will. I found it a good exercise. I expected listing my dreams make me feel discouraged because I feel like they are out of reach, but instead I felt a bit energized and ready to think about the possibility of one or more of them becoming reality. Even though I haven’t yet completely sorted my retirement basket and security basket (small steps towards each but neither is to the level it needs to be) I do have a small savings plan for the dream basket. It is only $25/month, which is about 1% of my spouse’s take home pay, so small. But, all of my baskets are small right now. I guess I could be concentrating on a specific basket more but since most of my focus is debt elimination, I find the many small basket approach more comforting to me than the one bigger basket approach.

The one “complaint” I have about the book is that it does seem to me to be written more for the people who actually could accomplish all these goals (the baskets etc) rather easily, but just lack the know-how or understanding to do so without the guidance provided. There is a real segment of the population, me included, who really *don’t* have the means to make all these savings plans a reality right off the bat, and each chapter basically assumes you have completed the chapter before it and pats you on the back for doing such a good job. Unless I took 5 years or more to read this book, I won’t complete one step before reading about the next one. This is more than willpower for me, it is an actual lack of available funds, no matter how much I cut our expenses. And so it goes. I am still spending less than I earn though!

Next week, Step 8 explores how to avoid the ten biggest financial mistakes couples make. I am hoping we are already not making most of them… stay tuned to find out and see if you are making any of them as well!

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, step 3 here, step 4 here, and step 5 here.

Now that we’ve learned about building our retirement basket, Step 6 teaches us how to prepare for more immediate worries by building our security basket. This can’t be an entire chapter just to say “save 3-6 months of expenses”, right? So Bach must have some more up his sleeve. But before reading the chapter, I really couldn’t think of what more he was going to talk about. But it turns out security covers a broad base of issues that I didn’t quite associate with money on first thought (I have a problem with not thinking “big” enough when it comes to finances).

Looking at Step 6, Bach reminds us that life is messy – you should hope for the best but prepare for the worst. The meat of the chapter is outlining 6 things to do right away to protect yourselves (and a description of how to do each):

• Set aside a cushion of cash
• Both of you absolutely must write a will or set up a living trust
• Buy the best health coverage the two of you can afford
• Protect those who depend on you with life insurance
• Protect yourselves and your incomes with disability insurance
• If either of you is in your 60s, its time to consider long term care coverage

Upon reading the chapter, I started thinking about which of these steps I was doing well, which I was doing passably, and which I really needed to focus on. My answers really reflected our current situation much more than Bach’s standard advice, which was okay with me. I liked that again the chapter surprised me and brought up a few issues that I don’t often think about. I am sometimes too much a “set it and forget it” kind of gal. And there are a lot of strategies in the chapter for meeting each of these goals as well, and reality checks on if your preparations are adequate enough.

I have set aside a cushion of cash. Not anywhere near what Bach suggests, which is a bare minimum of 3 months and in some circumstances up to 24 months of expenses. But I am indeed comfortable (for now) with the small amount I have set aside. I have a $1000 emergency fund, as well as about $2000 in “liquid” assets (the kids college funds and my long-term savings fund for house repairs) that in a true dire emergency I could get my hands on pretty quickly. That is more like one month of expenses vs three, and most of that other $2000 is untouchable to me except in the most dire of circumstances, but I am making a tradeoff to reduce my debt as quickly as possible and I am happy with my current decision on that.

The big one we fail on as a couple is a will. The cheap do-it-yourself and get it notarized type won’t stand up to legal scrutiny, I’m afraid. It seemed like enough when we were childless but now that we have kids, I think my spouse and I need to just bite the bullet and hire a lawyer and pay the money it costs to get it done right. Sigh. I know myself though, and I’ll continue to put it off until the credit card debt is wiped out. I resolve to at least set up a current and up-to-date do it yourself type. Maybe it won’t be the greatest but at least it is something.

Health coverage and life insurance are two places I really feel like we are doing okay. I’ll have a lot more to say about health coverage over the next few days, as we’ve suddenly been presented with options and choices, but I feel like we are making the best choice for our family as a whole that we have available right now. We also have an adequate amount of life insurance. It isn’t my ideal, but it is enough to give either of us several years to make any decision or changes to our lifestyle if one of us was to die, and would give our kids’ guardians an adequate amount of money to raise them if we both were to die. Our life insurance policies are independent of my spouse’s employer, and I am thinking about adding a second policy through his employer to supplement our coverage, because the rates are really really inexpensive. I haven’t decided on that completely though.

The last issue we as a couple really need to reassess is disability insurance (since we are in our 30′s the long care term coverage does not apply to us yet according to Bach). My spouse has some minimal coverage through his employer. He could pay to have more, and yes, it is very expensive. But the likelihood of him being disabled is higher than the likelihood of him dying, yet we are better prepared for death than disability. I hate putting it off any longer, but I think we won’t really be upping that coverage until the credit card debt is gone. Basically, we’re playing a betting game that my spouse won’t become disabled in the next year. I hope we win. Then we are going to have to look hard at our priorities and figure out what to increase our coverage to.

So… our security basket needs some work. But so does our retirement basket so its in good company! Knowledge is power and the more aware I become of potential shortfalls the more prepared I am to do something about it. I’ve learned so much already, that I feel like Step 7: Building Your Dream Basket will just be icing on the cake! Come back next week to find out about living your dreams along with me!

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, step 3 here and step 4 here.

Are we ready for retirement? Or at least, are we adequately preparing for it? Let’s delve into Step 5 of Smart Couples Finish Rich and find out! Step 5 is Build Your Retirement Basket. Bach refers to different savings goals as “baskets” throughout the book – the retirement basket, the security basket (step 6) and the dream basket (step 7). As I contemplated this chapter, I prepared myself for it telling me we weren’t doing enough. I understand that. I am well aware of the days, weeks, and months slipping away that I am not taking full advantage of the power of compound interest. We are doing a little bit (4% of my spouse’s salary goes to his 401K with 20% of that matched) but not enough. And, I was right. Read on….

The basis of Step 4 is practicing the concept of Pay Yourself First. Put aside 10% of your pre-tax earnings to your retirement. Bach is a little (justifiably) harsh in giving his wakeup call: If you are not paying yourself the first 10% of your income, you are living beyond your means. Ouch. If you want to be really rich – save 15%. Etc, etc. Now to make that bite a little less – if you do this in a pre-tax manner (401K, IRA) you see less money gone from your paycheck than if you do it in an after tax manner. The chapter then goes through the ins and outs of different retirement accounts and options, including those for the self-employed. The chapter finishes with the Finishrich Rules of Retirement Investing, which I like enough to repeat here:

1. Know what your money is doing
2. Make sure your retirement money is invested for growth
3. Allocate your assets so that you maximize return while minimizing risk
4. Invest in your company’s stock, but do your homework!
5. Make sure you read all of step 8 (we’ll get there in a few weeks)

Well, after reading the chapter, I found I had learned a few things. I, like most of the rest of the planet, had heard the “Pay Yourself First” mantra time and time again. But I never thought about it being about retirement savings. That is probably obvious, but it wasn’t to me. So I feel a tiny bit better now. We are saving 4%, and I have a goal to get that to 6% even before we are out of debt, and then step it up annually by 2% when my spouse gets his annual raises. Once it is at 10% I’ll have to decide if we want to raise it further (that won’t be at the maximum contribution) or if we want to look at the IRAs instead. But that’s a while off. Overall, I feel better that we are doing something, but know we need to step it up and do even more. Soon. The next period we can raise the 401K % is coming up soon and I have already talked to my spouse about raising our contribution to 5% then (6% is the limit of the 20% in matching funds from his employer).

Retirement. Better late than never to think about it. Even better to do something about it! But what about right now? Come back next week where we discuss Step 6 – Build Your Security Basket.

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.