Fast approaching retirement age and looking for “a no-fail 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 get from behind the eight to wealthy retiree.
Third part: Save more
Most of us have heard the term 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 whatever we have in our bank accounts. But when you start late, you don’t just want to pay yourself first; You need to pay yourself faster first!
One of the best ways to do this is by using a pre-tax retirement account. If your company offers one, you are stupid not to use it. If your company offers matching funds, you should invest at least the matched amount. But as soon as possible you should maximize your contribution. Why would you do that instead of putting some of your after-tax dollars into another account? Just look at the math. After the government deducts taxes, you have less to spend or invest.
The second most important key is to do this automatically. If you have to physically transfer the money, an event is likely to occur in your life that will swallow up the money you were about 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 that you should save at least an hour a day from your income. If you start late (which you probably will if you’re reading his book!), you should be saving at least two hours of your earnings a day. He insists it’s easier than you think and the key is just making the choice to do it.
What about budgeting? You may 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 setting limits on that, he teaches that you should focus on how much you can save. If you take care of saving, the spending will take care of itself. But you have to make sure that the savings are automatic.
What should you invest in? Bach says your life should be interesting and your investments should be boring. Even more money is lost when you invest in “the next big thing” that somehow doesn’t pan out. Most financial experts will agree that the S&P has remained fairly stable over the years. There may have been a few bad days, but if you average it out, you’ll find a steady uptrend. His advice is to pick the perfect pie approach and split your investments into three ways: stocks, bonds, and real estate. When one goes down, another of your investments goes up. By not putting all your eggs in one basket and diversifying into these three main areas, you’ll be able to isolate yourself from those big drops when they do come. I can attest to this method of investing. During the recent downturn in the stock market and mutual funds (which historically haven’t both gone down at the same time), my REIT was the only one still making a good, steady profit.
If you own a home, you have already started your real estate investment. If equity isn’t equal to one-third of your total investments, consider adding a REIT investment to your portfolio. He has some excellent resources on both stock and bond investment companies.
If you rent, pay close attention when Bach explains why renters stay poor and homeowners get rich. He shows you how you can buy a house – even if you have bad credit (although you will have to pay higher interest than if you were debt-free). Still, he insists you shouldn’t wait to buy. Charts are provided so you can see how much house you can afford. Real estate is not only a good investment; It actually gives you something to show for the money you spend on a roof over your head every month. not rent.
Again, Bach insists that this needs to be automated. He strongly encourages (as most financial advisors do) that you pay off your house in as little time as possible. By paying off your mortgage biweekly instead of monthly, you can pay off your mortgage years earlier and save tens of thousands of dollars in interest.
By following David Bach’s advice on how to save more, you can make up for some of the lost time and compound interest if you don’t start sooner. Putting just one or two of these ideas into action will have a huge impact on how much more you can save for retirement, so you can start really late and still finish rich!