Putting financial house in order

INSIDE

Putting your financial house in order

By John R. Fisher, Ph.D.

LivingBetter Online Magazine, April 2, 2005 http://www.livingbetter.org

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I picked up David Bach’s book, The Automatic Millionaire, at Wal-Mart today and read a chapter on the Latte Factor. I was almost tempted to buy the book, but realized if I did I would be doing exactly what Bach said I shouldn’t do. So now I guess what I’ll do is read a chapter every time I go into Wal-Mart. I will get the knowledge, use my waiting-time in Wal-Mart productively, and be $13.99 plus sales tax better off. But, will I save what I didn’t spend? Only time will tell. <>

People don’t get rich by earning more money. They get rich by saving and investing their money, according to David Bach. Most people, when they get a pay raise, spend the increase. It is only by saving and investing regularly that you can begin to accumulate wealth. <>

And how do you get enough money to save. David Bach calls it “the latte factor.” Instead of spending $3.50 a day for a latte and $1.50 for a non-fat muffin, put the money into savings. (I assume, however, you are still going to have to eat breakfast. Eating breakfast at home could save you maybe $3.50. Or would it only be $1.50 you save?) <>

David Bach is repeating things I’ve heard all my life. Pay yourself first. Take 10% of your monthly income and put it into investments. Buy a house and pay it off quickly. But I’ve never made more than I spend. So how do I follow Bach’s advice? <>
Another factor that Bach doesn’t seem to consider is age. His examples all seem to be directed at 23-year-olds. I will be 57-years-old next week. I make a good living as a university professor. I have 19 years in a retirement fund, but otherwise I don’t have any savings. In fact, because I spend more a month than I earn, I may have to draw from my retirement to get out of debt. So at my age, how do I get rich? <>

David Bach’s ideas are good, but require discipline. Putting one’s financial house in order requires discipline. And may mean going to a neutral, uninterested third party to get financial counseling. (Don’t pay for the counseling or go to someone who wants to sell you something. Both defeat your purpose.)

Look at the lattes in your life and cut them out. A cell phone. Cable or satellite television. Extra features on your phone service. Snacks at work. Eating out. Movie shows and videos. Resist sales of new shoes and other great buys. Buy groceries on sale and buy no-name brands. In other words, sacrifice.

How do you find out how much you are spending and where you can save? David Bach suggests you record your expenditures for five days. Oprah Winfrey has a website that will show you how to “take the five day challenge.” (See below.) Note that the problem with this approach is that by consciously keeping track of your spending, you begin unconsciously to cut out things you otherwise would buy.

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You should also look at your monthly bills. Where can you save? Can you sell off an extra car? Can you reduce your phone bill? Can you get rid of your cell phone or cable television? Do you need to be paying for a monthly fitness club? Can you get your haircut for less? Or have someone cut it for free? What hobbies do you have that cost you money? What habits do you have that cost you? <>

Click on this web address to see my personal analysis of expenses. It may have ideas that you can use in putting your financial house in order. It also has a form that you can use to do a self-analysis. http://www.livingbetter.org/livingbetter/articles/financial_analysis.html <>

More information about financial security <>

Fisher, John R. 2005. How I saved $100 in phone bills per month. Retrieved April 2, 2005 from http://www.livingbetter.org/livingbetter/articles/phone.html <>

Fisher, John. April 2004. Getting out of debt – the first step to financial freedom. Retrieved April 2, 2005 http://www.livingbetter.org/livingbetter/articles/debt_free.html <>

Finish Rich Media. The latte factor. Retrieved March 31, 2005 from http://www.finishrich.com/free_resources/fr_lattefactor.php <>

Finish Rich Media. The latte calculator. Retrieved March 31, 2005 from http://www.finishrich.com/free_resources/lattecalculator.php

<>It’s Your Money. 2004. Not big on Bach. Retrieved March 31, 2005 from
http://www.mdmproofing.com/iym/articles/2004-08-22.html

<>Scotiabank. Save by spending on what you value. Retrieved March 31, 2005 from
http://www.scotiabank.com/cda/content/0,1608,CID8683_LIDen,00.html#

Winfrey, Oprah. Automatic Millionaire: How to become one. Retrieved March 31, 2005 from http://www.oprah.com/tows/pastshows/200401/tows_past_20040113.jhtml

Winfrey, Oprah. Take the five day challenge. Retrieved March 31, 2005 from http://www.oprah.com/tows/pastshows/200401/tows_past_20040113_g.jhtml