Most likely you are familiar with David Bach, author of The Automatic Millionaire. I’d personally never read any of David’s books (or any other personal finance books for that matter) but I was familiar with him from The Today Show’s Money 911 Series where he is a regular contributor. That’s how I got my hands on his latest book Start Over, Finish Rich. I happened to catch the Today Show segment where he introduced this book and offered a free download on his site for 24 hours.
Having gone through our own financial apocalypse last year, I was interested in what insights and advice Start Over, Finish Rich could offer me. I found that David offers sound advice, especially for those that have not yet taken any steps to take control of their finances. He offers 10 action steps that can be implemented right away to put you back on track to building wealth and financial stability.
STEP 1 – Recommit to Wealth
David believes that the first step is to recommit to getting your finances on track. He believes that the current market, or what he calls the Great Recovery, offers unprecedented opportunities to build wealth. I tend to agree and believe that those with capital to invest will do very well. Since we don’t, we’ll focus on our retirement accounts and take away the lesson that market pullbacks and corrections offer excellent opportunities to those who are prepared to take advantage of them (i.e. capital).
STEP 2 – Find Your Money
Getting your finances organized – understanding where your money is and where it is going – is the key to starting over. David argues that in order to make a financial plan based on reality (versus wishful thinking), you need to do two things:
1.) Determine your assets and liabilities
2.) Figure out where you spend your money, month-by-month, day-by-day
He goes on to outline how to do both these things.
The first is the “Start Over” File Folder System for 2010 which is a simple system that allows you to find your bills and important documents quickly. I’m going to implement this system right away. My finances are very organized electronically, but my filling system…well, is non-existent. I have piles of paper all over my office and in boxes. I keep way too much and it takes me way too long to find anything. This causes me a lot of stress, especially with tax season approaching. David has provided me the tool to get this aspect of my financial life in order.
Next David challenges you to get a handle on your spending by determining your Latte Factor. Essentially the Latte Factor is the amount of money you can save by cutting out small expenses such as Lattes or Cigarettes or fast food. Even saving $5 / day ($150 / month) can make a big difference. I recently shaved 5 years off a loan saving us $12,000 in interest by finding just $130 in my budget each month and applying that to debt. You can find David’s Latter Factor calculator at www.thelattefactor.com.
I do think a missing step in this chapter is determining your net worth.
STEP 3 – Deal with Your Credit Card Debt
In this chapter David introduces the Dead on Last Payment or DOLP system. It requires some calculations on your part but the net result is similar to David Ramsey’s Debt Snowball. Essentially, pay off your lowest balance first and then apply extra funds to the next lowest balance until that is paid off and repeat until you’ve paid off all of your debts.
STEP 4 – Fix and Protect Your Credit Score
This chapter explores the factors that affect your credit score and outlines a 10-step plan to raise your score over the course of a year with the goal being 720 or higher.
STEP 5 - Rebuild Your Emergency Savings
Without a cash cushion we are only one job loss or one emergency medical expense away from disaster. David encourages readers find the money either by determining your Latte Factor or by sacrificing some luxuries such as cable TV or eating out. He then gives you four rules:
1.) Set yourself a goal
2.) Make it automatic
3.) Put it in the right place
4.) Leave it alone
He helps you determine your goal with the “Sleep Well at Night Test”.
You can also read more about how much to put in an Emergency Fund here.
STEP 6 – Re-energize Your Retirement Plan
If you’ve stopped contributing to your retirement account, you need to start again immediately. David encourages readers to take ownership of their 401K’s – know where your money is invested, compare performance to other funds, check your asset allocations. At a minimum you should be contributing enough to capture 100% of your employers match. And if you can, increase your contributions, gradually if necessary with a goal of reaching the maximum contribution allowed.
STEP 7 – Make It Automatic
This is the crux of David’s “Start Over” Plan. If you are to succeed in building wealth you must automate your savings, retirement contributions and even your bill payments. Make it automatic and remove the burden of relying on self-discipline to fund your accounts.
STEP 8 – Rebuild with Real Estate
David points out that real estate always has its booms and bust, but over the long term, real estate makes people rich. And with the housing affordability index at its highest levels in decades, there is no better time to invest in real estate.
While I agree completely with David, I think it is worth considering whether we have seen a bottom in real estate and how long it will take before we start to see housing prices recover. History shows us that the real estate market can move sideways (not moving significantly up or down) for years after a major correction. That is why we don’t feel compelled to rush into the market again. Only time will tell if we are right, but either way, we’ll be in a much better position waiting and saving versus rushing to buy out of fear of missing out on a deal and having to over-leverage ourselves.
STEP 9 – Rebuild Your College Fund (and Restructure Your Student Loan)
529 College Savings Plans have suffered the same meltdown as 401K’s, losing as much as half their value over the past couple years. As a result, there has been a sharp decline in the amount of contributions. But with the ever increasing cost of a college education, David argues it’s more important than ever to save for your child’s education. But only after you’ve funded your emergency account and retirement plan. David also offers tips for college graduates that are currently struggling to repay their student loans.
STEP 10 – 25 Ways to Save $5,000
In this chapter David offers 25 ways to save $5000 a year. This chapter provides useful tips for those that haven’t looked at cutting the fat from their budgets yet.
In Summary
Start Over, Finish Rich offers sound advice to those just starting their efforts to take control of their finances. It also serves as encouragement to those of us that are or have experienced financial hardships.
My Action Plan
There are two steps I plan to implement as a result of reading this book.
1.) “Start Over” Filing System – The current state of my files causes me way too much stress. David’s system is simple and I should be able to implement it in about an hour.
2.) Automate Emergency Fund contributions – I pride myself in having the discipline to faithfully contribute to savings. But there really is no reason why I wouldn’t do this.
Hi, I’m Cathy! I’m a former career-driven professional turned stay-at-home mom. Living on one salary has its challenges, but it is possible to live the good life while spending less. Cool to be Frugal is all about how we’re thriving, not just surviving, on a single income.
