Personal Finance: Retirement – 50 Day Video Challenge (Day 22)

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Personal Finance | Plan For Retirement

If you have ever read David Bach’s book, The Automatic Millionaire®, then you know about the Latte Factor®, in chapter 2, and the “pay yourself first” strategy, in chapter 3. The Latte Factor® is a simple exercise to help make you aware of all the money that you spend without even thinking about it on things that you would not even miss much less need.

Latte Factor® is not an exercise to convince you and I that we need to start and maintain a budget. It is, however, designed to make us realize that we already earn enough to be able to save for the future, without a budget.

Here is the bottom line: budgets suck! They don’t work. They are no fun, and they run completely against human nature. They are kind of like diets. When was the last time you met someone who “went on a diet” and actually lost weight and kept it off? It’s is a rare occurrence. So, a better option is to just make a few lifestyle and eating tweaks. Then, over time, we are able to lose the weight and keep it off.

There is a better way than budgeting to save and plan for your financial future. It isn’t quick. But, it is easy. Here is the strategy in one simple sentence:

Pay yourself first.

That’s right. When you earn a dollar, the first person to get paid is yourself. Before, the electric company, visa, the grocery store, and even before Uncle Sam. Even before he gets his cut, place those first dollars into pre-tax retirement accounts like a 401k at your place of work, or an IRA, Simple IRA, or SEP IRA if you are self-employed.

Placing your first 10 – 15% into a pre-tax account allows you to save for the future with tax-deferred dollars, and it allows you to save on your tax bill due at the end of each year. Because this contribution to your future reduces your income, you can usually experience a nice little reduction to your overall taxes due.

In summary, use the Latte Factor® for a day to help you determine how much money you are wasting each day. Then, instead of wasting it, redirect those dollars into retirement accounts before it is spent anywhere else – pay yourself first. You deserve it!

Then, in chapter 4 of his book, David Bach tells us how to make this strategy easy:

Make it automatic!

He goes into much more detail about how, and where to go for help, but in a nutshell, have it automatically deposited from your paycheck into a 401k if that option is available at the office. And if you need, have those dollars redirected automatically from your checking account into an IRA, Simple IRA, or SEP IRA.

Let me give you some incentive:
$100 invested at 10% over 30 years grows to over $250,000! We simply cannot afford not to make this little tweak to our spending habits.

This is the KEY to The Automatic Millionaire®. Put your retirement savings on autopilot and just live on the difference. This one strategy can make the difference between living in poverty and living with dignity in your “golden years.”

The rest of chapter 4, “Now make it Automatic,” Bach gives statistics, discusses basic investment strategy, and even gives names and numbers of companies that offer these pre-tax accounts and services.

The Automatic Millionaire® is a wonderful book with time tested strategies for personal finance, and finishing rich in retirement years. They all require many years of growth and savings to accomplish, as these are all long-term strategies.

But, what if there was a way to accelerate that process? What if instead of 20, 30, or 40 years, you could accomplish the same goals in 15, 10, or even 5 years? Actually, there is a way to make it happen more quickly, and David Bach himself endorses it too. Keep checking in. I’ll be writing about that soon. ☺


Jerry Spangler


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