Book review: Start Late and Finish Rich

Again, I’m only about half way through this one. This one relies on the principle of Pay Yourself First. He advocates $10 a day. If you are in debt, $5 of it should go to debt and $5 of it should go toward savings and investing. It’ll take you a little longer to pay off your debt, but you’ll still get it paid off relatively quickly and your investment can grow using the wonders of compound interest.

 

$10 a day works out to $300 a month. He suggests the Latte Factor: cut out your daily latte and you’ll save $5 a day. For those of us starting late, we may need to save more than that. That’s when you start looking at interest rates on credit cards and cutting out cable TV and the like.

 

His big deal is to invest in a tax-deferred 401(K) or the equivalent tax-deferred retirement plan. That way you’re saving your money even before taxes come out. And you get a tax break on what you have saved. This sounds great until you realize that, if you end up with millions of dollars (which he says you can if you’re doing this right), you’ll be paying more in taxes when you retire than you are now. I’ll have to break out the calculator, but I’m not actually sure which is the better deal. Tax-deferred you’ll definitely end up with more money in the account, but if that bumps you up significantly in taxes, it may wipe out that advantage. After tax dollars aren’t taxed when you take them out after retirement. You won’t have as much to take out, but you won’t be taxed on it at all. If you can manage to save a million this way, it might be a better deal. I just don’t know, and I don’t even know how to do the math that would tell me (hence planning the self-taught class in accounting). For now, we have a tax-deferred account through my husband’s work that we are contributing to.

 

He does a lot of math and makes it all sound relatively easy. What’s $10 a day? Well, that question gets harder when you’re older and have to contribute $20 a day. That’s $600 a month. That’s a significant chunk of change. He touts paying yourself first so that you will be sure to save that much. And, once you’ve done that latte calculation and come up with a ton of money that you can theoretically save every day or week or month, it sounds easy. If you’re like us though, we’ve already cut out quite a bit of our frivolous spending. We don’t do lattes. Hubby gets about 3 sodas a pay period from the vending machine. So we’re going to have to cut back on things like groceries and entertainment. We can certainly afford to do that. I looked at last year’s totals for those categories, and we are spending obscene amounts of money on groceries, eating out, and entertainment. So, we’ll cut back.

 

I guess the logic of paying yourself first is that you won’t spend what you don’t see. If we automatically deposit $600 to savings (or in our case, the disability checks to the old bank account), we’re less likely to spend it. And, because we’re in debt, it would actually be $300 to savings and $300 more than what we’re already paying to the debt if we use that $600 dollar example. I have to admit that saving up some money sounds good. I want to get that debt paid off and I darn well will, but I’d like to have a bumper for times like these when everything quits at once. Dave Ramsey’s $1000 bumper is good but doesn’t leave you with much at the end of the 3 years it will take to pay off our debt. I like the idea of being able to have some actual savings as well though. It’ll take about 3 years to pay off all of our debt if we focus solely on that and I cut back everything to the bone. If it takes twice as long to pay off the debt but we are saving at the same time, using that $300 example, we could save $21,000 in 6 years, and still pay off the debt considerably sooner than we would if we paid minimums. That’s not including any interest we made on that money.

 

So maybe it makes a little sense. Or maybe I’m just getting swept away by the latest book I’m reading. I do that. We’re going to be buying a house next year and I’d like a little saved up to pay for whatever needs to be done when we move in (and the moving costs). Maybe I’ll try this for a while and see where it gets us. I’ll leave the disability checks right where they are and portion them out half and half to savings and debt. Regardless of what we do, the van will be paid off in 6 years. I’m aiming to have it paid off before that, along with the credit card debt though. It won’t get paid off quite as quickly, but it’ll get paid off.

 

What the heck. The worst that happens is that it takes a little longer to pay off our debt and we get a savings account in the process. I still have to finish reading the book though to see if this is something I can really get behind and to understand all that he’s suggesting.

 

The book was written in 2006, so he talks about getting rich through real estate in your spare time. Uhhh. No. I’m definitely going to have to take that with several grains of salt. But he says this early on that he will also talk about opening your own business and that sort of thing. I’m just not that kind of person. I don’t know about you, but I’ve never been interested in the long hours and heartburn of opening a business. Most of the books that talk about truly becoming rich advise you to figure out your passion, then open a business doing that thing. They don’t mention that about half of all businesses fail in the first year and more fail in the first 5 years. I guess that’s why he was advising real estate in a time when it was going through the roof. I want to figure out how to have a million dollars at retirement (26 years from now for Hubby) without having to risk bankruptcy to get there. There are millionaires all over the place who worked steadily at their jobs and saved and didn’t spend and ended up set. I want that. I think I can manage that for us, too.

 

I’ve done Dave Ramsey and it worked, but I ended up right back where I started. We were out of debt for all of 6 months I think before we needed to do the exterior of the house and start building up debt again. Now we’re back in debt with no savings and starting from square one. At least with this program I can be out of debt with savings. What the heck. It’s worth a shot.

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