13 Nov Too late for you to build wealth?
As you’ve probably realized by now, I am a huge advocate of getting empowered and educated. As noted in articles such as this one by Sally Krawcheck for LinkedIn, “The Top Ten financial mistakes women make”, number one is allowing your husband / partner / anyone else make your financial decisions.
I believe the more you learn, the less you’ll be tempted to do this.
As such, I thought I’d talk about one of my favourite financial reads, Start Late Finish Rich by David Bach. Bach is great at putting financial concepts into down-to-earth terms, and I like the conversational tone he adopts in his books. As well, for an American author he does a pretty good job of translating his books into “Canadian”, which earns him a big thumbs up from me.
What do I like about “Start Late, Finish Rich”? Most importantly, I think many of us feel that we’ve started too late. There are lots of ad campaigns out there that talk about saving a few dollars out of every paycheck; the message seems to be “start when you’re 21, and you’ll retire rich; wait too long, and you might as well give up”. It is exactly this mentality that Bach is fighting. He says, “… some of you may blame yourselves for not having started ealier, I also know that many of you are starting late not because you were short-sighted or lazy or irresponsible, but because life threw you a curveball… Divorce, death, illness, disability, bankruptcy, poor career choices, lack of education – and on and on”. Then, he adds, “Either way, it’s time to cut to the chase. What’s done is done… The real question is: What are you going to do about it now?”
So, what ARE you going to do about it now?
The book has some great ideas. It’s divided up into five main sections….
Part One, “Time to Get It” is really about finding your “why”. Why will wealth make your life better? And why is it still within your reach, even if you’re starting late? He’s great here at opening up some options and some hope. “It’s only too late if you give up.”
Part Two, “Spend Less” covers a lot of areas that people may normally hate to dwell on. Yes, he talks about budgeting, but he does it in a way that shines light on the opportunities for saving money by realizing where we might be spending needlessly. His big concept is the “Latte Factor”, a phrase he coined to show how much we could potentially be saving if we weren’t spending so much money on things like fancy coffees and muffins. And obviously, starting late also means that it is even more important that frivolous spending be identified and eliminated from your life. It’s like a money diet. You write down every little penny (or should I say, nickel?) that you spend for a week or two, and start to see the patterns of waste that you can target. Sound intense? Well yes, it is, but if you want to make a difference in your life financially, you need to commit.
In this section, he also talks about ways to reduce and eliminate credit card debt. He has some interesting suggestions here about consolidating debt and getting new 0% cards to pay off other cards carrying a balance. I’d be a little careful with his suggestions, because from a credit rating perpective, you get the biggest benefit from cards that you’ve had for a long time, not from a bunch of brand new cards (and frequent credit checks by potential credit card companies aren’t very good for your credit rating either). That said, targeting the highest interest cards for payoff first, and once they’re paid off, using them sparingly and paying them off in full monthly, is good advice.
In Part Three, “Save More”, he covers some basic concepts. Thanks to our Canadian boy David Chilton, the phrase “pay yourself first” has become more and more part of our speech. Bach reinforces this. Making your savings automatic is the way to go. In terms of where to invest your saved funds, he describes “The Perfect Pie Approach” investment plan. It’s an easy way to think about asset allocation – evenly divvying your money up between real estate, stocks and bonds. And before you freak out, he makes those simple too! He hassuggestions on which funds to consider and why. One thing I’ll mention here, is that while he names names, the nature of writing a book is that if changes happen in the marketplace, you don’t have the option to update things. So for example, Barclay’s Global Investors, one of the investments he suggests looking at, sold their business and their funds’ names have changed. I’ll direct you to a more up-to-date source: Rob Carrick of the Globe and Mail has great ongoing articles about investing in Canada, and his article “Everything you wanted to know about ETFs” gives you a great update on that investment type. Or google ETFs and check out articles in publications like MoneySense magazine. They’re great.
Bach’s final comments in this section talk about owning a home versus renting. Bach is a huge proponent of home ownership, stating “you can’t afford not to buy”. Mortgage rates in his examples are a fair bit higher than what we’re seeing nowadays, so the examples hold true even more. Without going into too much detail here, he does touch on things like saving for your down payment and buying a home with bad credit, and he’s done a great job with that. And he takes some time to talk about great ideas for paying your mortgage off early; always a good thing.
In the section he called “Make More” he talks about great ideas for how to get more money for the value you bring to the table. As women, we are not the best at fighting to be paid what we’re worth! Bach also encourages people to find a side business, with several concrete ideas. Even if one of them isn’t really your thing, it’s still good inspiration to get you thinking about what you can do to add more money to your wallet.
In the final section of the book, “Give More, Live More”, Bach circles back again to the idea of ‘why’. Don’t get so caught up in the money that you forget to live. And also, remember how fortunate we are, try to give back. What’s the value in being wealthy if you can’t help those around you?
I’ll give the closing line to David: “the bottom line is not to waste time focusing on what you werent taught, didn’t know, haven’t done. You are where you are and it’s time to take action. So are you ready to get going?”
Photo credit: [c] Ambro for freedigitalphotos.net