I’ve Paid For This Twice Already…

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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.

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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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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 and step 2 here.

Ready to Plan Together… Win Together? That’s Step 3 of Smart Couples Finish Rich. And let me tell you…. it’s a doozy. Here we start taking action, and I’m somewhat ashamed to admit… I haven’t finished the action steps yet. There are two main ones in this chapter and I’ve done one but only half-started the other. And I haven’t gotten my spouse to do his part. I even considered putting off this review until next week in hopes I’d get around to finishing but… the show must go on. I’m human too.

Looking at this chapter, I expected it to ask us to look at our future and plan out where we want to go. I expected a lot of focus on the planning together vs the nitty gritty of the actual plans. Boy was I in for a surprise…

The bulk of Step 3: Plan Together… Win Together revolves around two main action items: creating a file system for all of your financial information and developing your purpose-focused financial plan. The first is simply a file system organized in a specific way that houses all your important financial paperwork and information, that is designed so that when you get new statements, they can just be dropped into a specific folder. The second is a financial plan that takes into account your value circle from Step 2 and creates 5 actionable goals based on those values (one for each) that you develop specific steps in order to accomplish for a twelve month (or shorter) timeline. The chapter ends with the Clarity Question:

Twelve months from now, what five specific things would you need to have accomplished in order to feel you have made great financial progress in your life?

Honestly, on my first read, this chapter completely overwhelmed me. So much to do, so much encouragement to start doing something in the next 48 hours… and I am just so lazy. I am not saying both these things are not good ideas, it is just hard to get over my natural inertia. Reading I can do, taking action… well, less so. But I reread the chapter, and it didn’t seem *so* hard. Actually, not really hard at all, just time consuming.

I started the first project of organizing my financial records, and I had the file box and the hanging folders, but I do not have any file folders to go inside them. I set up the 12 hanging folders and labeled them, and stuck whatever would go inside each in them (I actually have most of my records easily accessible, if not actually very organized), but the inside of each of the twelve folders is not organized by account into separate file folders like it is supposed to be in the system. I kept meaning to go buy a box of file folders…. well, it is now Friday so it is too late for this week. But maybe by next week I’ll get that part done. I’ll keep you posted.

The second project, creating the purpose-focused financial plan - this I did do. But I didn’t manage to ask my spouse to do it… I have a confession to make. I’m the one reading the book. My spouse just does exercises I tell him to, and we have conversations about things I’ve read, but he has no interest in reading the book himself. The book is my “thing”. Okay, back to my purpose-focused financial plan. I found this, frankly, very difficult. What financial goal did my value of “growth/creativity” relate to that I want to accomplish in the next 12 months? How about marriage and family? Honestly I wish that there were some concrete examples in the book to give me some ideas.

I have no idea how to paste a chart here, and also I did this on paper not the computer, so I’m not going to spell out my entire worksheet. But I will say the value and what goal I related to it:

• family/marriage: double my daughter’s college savings account and increase my son’s by 50% in the next 12 months
• security: increase spouse’s 401K contributions from 4% to 6% (the max for matching funds) by 12 months from now
• growth/fulfillment: reduce possessions by 60 over the next 12 months through sales or donations (5 per month)
• creativity: create specific scheduled time for blogging throughout my week and increase the blog’s revenue in the next 12 months (had to tie it to money somehow, but since the revenue so far is negative, that should be simple… lol)
• freedom/independence: eliminate credit card debt in the next 12 months.

So, there you have it. Five financial goals tied to my previously stated values. I’m still not too happy with the growth/fulfillment one, although becoming happier with less does feel fulfilling. The freedom/independence one is basically my top priority goal, as illustrated by the blog’s whole premise.

Overall, I found this step largely frustrating. I was frustrated with myself for not finishing the file system and also for not talking to my spouse about creating the financial plan, and also with the whole process of creating my own financial plan. I honestly don’t think what I created represents my top 5 financial goals for the next 12 months (although I’m also not sure what I would add instead). Some of them definitely do, but some of them I was totally reaching. If I do accomplish at least the most important of those goals though, I will feel like I’ve made great progress in my financial life as stated in the clarity question. I did like the clarity question. So, there’s that.

Next week we look at Step 4: The Couples’ Latte Factor. Hopefully by then I’ve completed Step 3 and asked my spouse to do the same. See you then!

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Each Friday for ten weeks I am reviewing a chapter of David Bach’s Smart Couples Finish Rich. The introduction can be found here and the review of step 1 here.

This week, we’re up to Step 2 of Smart Couples Finish Rich. So far, I’ve really enjoyed the book and I’ve learned a few things about my spouse and myself, so it’s been a good read. Step 2 is “Determine the True Purpose of Money in Your Life” and that sounds like a good idea to me. Hopefully the chapter would teach me how not to have “buy stuff” the answer to that question .

The chapter basically boils down to one single concept: Creating a Value Circle. What is a value circle, you ask? Basically all it is is an interlocking circle illustrating the top five values in your life. Once you’ve listed your top five values, connect them together in a circular pattern and ask yourself: does my financial behavior match my value circle? The only trick is to make sure that the five things you write are values (like freedom, security) vs goals (get out of debt, buy a house). Once you and your spouse have created value circles you can start looking at if your financial behavior is reflected in your values.

Reading this chapter, I again learned that I don’t know as much about my spouse as I think. Not that I wouldn’t be able to fill in some of his value circle - but I’d never really asked him “What are the top 5 things you value in your life?”. I’m still not directly seeing how the purpose of money isn’t to do/have stuff, but I am a little bit getting there. My spouse and I both did the “value circle” exercise and it was harder than I thought it would be. I don’t even know as much about *myself* as I thought I did! I did complete my circle, but I’m still not quite sure it is completely accurate:

• family/marriage
• security
• growth/fulfillment
• creativity
• freedom/independence

And my spouse’s:

• family
• security
• happiness
• marriage
• fun

Both of these are in no particular order. And you can see, to me, marriage and family is an intertwining value but to my spouse they are separate values. And I use a lot of slashes. I’m a complicated person. I could have filled in my spouse’s I think but I wouldn’t have chosen “fun”. I think I need to let him have more fun ;).

I found creating the value circle a useful and appropriate exercise. Now to learn to have our financial goals reflect our values… but not for a few weeks yet. Next week we look at where we are currently financially because as the quote at the end of the chapter says:

..you can’t plan where you want to go until you know where you are starting from.

Stay tuned next week for Step 3: Plan Together… Win Together!

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Each Friday for ten weeks I am reviewing a chapter of David Bach’s Smart Couples Finish Rich. The start of the series and the first chapter review can be found here.

Last week I reviewed the introductory chapter of David Bach’s Smart Couples Finish Rich and was looking forward to getting started on the meat of the book - the 9 steps that were going to propel me into the top 1%. I’m not sure what top 1% that is: wealth, “richness”, knowledge… but any of those things seems to be up from where I am so I’m still excited.

So here we are at Step 1: Learn the Facts and Myths about Couples and Money. Sounds simple enough. Before delving in to the chapter I was pretty sure I would know all the facts, know the myths are myths, and pretty much not really learn much. I was right *and* wrong, in a good way.

The chapter starts with reminding us that it’s not just about money! Couples have to agree on their goals and vision as well. Two stories are used to illustrate this point. Then we are told it is what you *don’t* know that can wipe you out - and we are given 5 myths about money and their corresponding facts. I won’t give the whole book away but here are the 5 myths, read the book for the facts if you can’t guess them (and did you know these were myths?):

• If we love each other, we won’t fight about money
• It takes money to make money
• We don’t make enough money yet to be investors
• Taxes and inflation are now under control
• If we don’t talk about money everything will work out okay

Each of these are expanded on with stories and examples. And then comes the fun part. There’s a quiz! Not about the book, but a quiz for you and your partner to each take and then compare answers to see what you know and don’t know about each other in regards to both your knowledge about your overall finances and your unique attitudes about money.

Reading this chapter the first time, the quiz is what had me most excited. Reading the quiz, I knew there would be some discussion starters for my spouse and I within it which was a nice surprise because as I said, I didn’t expect to learn anything new from this chapter. I thought we had talked about most things related to finances before reading the quiz, but there were a few questions we’d really never considered. My spouse and I both took the quiz and we did have a long conversation after the kids were in bed about how our own attitudes about money had been influenced by the values of our parents, and also about things like living wills and trusts. In my more careful read of the chapter as a whole, I found that a few things seemed a bit outdated - 12% is thrown around a lot as a figure for what your money, invested, will grow by and that seems… optimistic. Also… myth #4… does anyone think taxes and inflation are under control? Maybe people do. I guess I’m a skeptic. And it is a myth anyway ;).

Overall, I really liked the positive tone of this chapter and the idea that with communication and determination, you can make a little money into a lot of money over time. The numbers examples might have been slightly dated but they were also very positive and reinforced the tenets of the chapter - you can make money with just a little money consistently put away, if only you put that money away wisely. The definition of “wisely” is for another chapter.

Next week I’ll be looking at Step 2: Determine the true purpose of money in your life. I’m going to guess that “to buy stuff” will not be the appropriate answer :).

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