Just finished David Bach’s book “The latter factor”. Very easy written and it’s a big pleasure to read. The story is about young 27 y.o. girl, living in New York City and working as an editor in Freedom Tower in the Travel Magazine Publisher House.
Her life is pretty stable, she works in the office (9am to 6pm), gets some coffee and muffins on the way to work, gets the L train from Brooklyn where she rents a room, she meets with friends sometimes, having drinks at Friday night, she loves photograthy and beautiful places. But suddenly she lives from paycheck to paycheck and can't afford Photograthy Courses she is dreaming about, travels every year, and to buy her lovely art-photography “Sunset at Greece islands” - she saw in the coffeeshop, where she gets her latte after lunch.
And it happens that she meets old barista at this coffeeshop, who starts to tell her stories that she has everything to live rich life now and become a millionaire in her 60s.. It turned out that this old barista is the owner of that coffeeshop, and really understand a lot how to live rich life. Live the life of her dream. So here a few concepts he shares:
Pay yourself first
Don’t budget - make it automatic
Live rich now
How simple steps, aren't they? Let's go into details a little bit.
1. Pay yourself first. It is about how compound interest return (risk adjusted returns), for example 10%. How small amount of money invested everyday (automatically) turning out to decent amount of cash in 30-40 years. For example let’s say, one hour of her job cost $25, so she works from 9 am - 6 pm, what does mean, for example:
9 am -11:30 am she pays for taxes,
11:30 am - 2 pm she pays for rent,
2 pm - 3 pm transport,
3 pm - 5 pm food,
5 - 6 clothes etc.
And at the end of month she has to start again, and at the end of her life she will stay with empty pockets?
So he offers her to keep $25 she earns 9-10 am (before taxes) for herself - at retirement account. In American companies there is 401K plan which allows to keep retirement money before taxes. Or it's possible to set it up individually with investments funds with compound interest return 5-10%.
2. Make it automatic. At the same time to count how much money everyday she spends for things (coffee, subscriptions, drinks, lunch, brunch, lattes, cakes etc). To realize that she already is rich enough to start investing, if she spends all those money during the day. He advices to set up all automatic payments with compound interest (5-10%). Here is calculator to count how much you can earn in 40 years, collecting with compound interest even $5 per day. https://tools.doughroller.net/latte-factor-calculator/
3. Live rich life now. To realize the values and live accordingly those ones, to collect and spend money on making your dreams come true. Following David Bach's advices it's necessary to set up automatic payments for her dreams and value goals as wells as for retirement.
This books teaches not to cut off all the pleasures as latte for example, or how to save money. This book will teach to listen yourself what really makes you happy and to act accordingly that. To analyze unreasonable expenses which do not make you happy = do not resonate with your values, to adjust financial habits, if those doesn't serve longterm goals. It helps for example to reduce the number of not useful subscriptions on your phone, to make lunch at home, and find those $25 a day for personal investments to be become millionaire in your 60s.