Several months ago, I was rearranging some things in my guest bedroom; on the bookshelf in that room, I came across a book I read many years ago, Smart Women Finish Rich, by David Bach. My older (female) cousin gave me the book after I started my first full-time job, in public accounting, and it basically set me off in a direction of being intentional with my personal finances. It was because of this book that I built up an emergency fund, that I began contributing to my company’s 401(k) as soon as I was able to, and overall began to practice discipline in the area of personal finance. Since that time, I’ve refined several areas relating to finances, but because this book launched my personal finance journey, I figured what better book to start with for a series of posts on different books to help you on your personal finance journey?
Based on the title of this book, one can assume that the target audience is women. This is obvious, however the general principles outlined in this book are applicable to everybody; Bach just tailored the steps towards women. If you’re unfamiliar with David Bach, he also authored many other books in the same series, such as Smart Couples Finish Rich and Start Late, Finish Rich. The nine steps outlined in the book can be completed by anyone, not just women, and go from getting a good overall handle on your personal financial situation, to aligning your money with your personal values (“what’s important about money to you?”), to figuring out where you want to go with your money, and then on to the basic steps of investing. He also touches on other areas of personal finance, such as the different types of insurance you should have, raising kids who are smart when it comes to money, and several other topics.
One of the most important points that I personally took away from the book was what Bach describes as the “Latte Factor”. If you ask most people whether they’re saving for retirement, the majority will most likely say no, and the main reason most will give is because, at the end of the month, they have no money left over to save. However, if you continue to ask about their daily routines, most will have some habit similar to heading to the local coffee shop to buy their daily dose of caffeine. I’m sure you have a similar habit, too – I know I once did! But think about it; a grande (medium) latte at your local Starbucks generally costs upwards of $4. Five days a week, that’s over $20; and in a given month, that’s close to $100. Annualized, that’s almost $1,000 per year, and if invested until retirement, with a return of 12% on your investment, you’d be sitting on over $1 million dollars, just from cutting out that daily latte!
As I’ve personally grown on my journey of personal finance, and also from helping others in their journeys, there are a few areas discussed in the book that I tend to disagree with, either in whole or in part. I recommend that people get out of all debt, other than their mortgage, and build a healthy 3-6 months emergency fund before beginning to contribute to their retirement plans (if they’ve already begun contributing, I ask them to press pause until they get those two steps completed). It’s much harder to do a really great job in one area if you’re juggling multiple tasks all at the same time, and I want my clients to pay off their debts as fast as they can, in order to free up those funds to save for those inevitable emergencies (i.e., the AC going out or an expensive car repair) and then ultimately begin contributing to retirement. Pressing pause for a couple of years is not going to matter in the long run as much as getting out of debt will!
Overall, however, Bach does a good job of outlining an overall sound action plan to personal finance. He touches on all areas that I generally coach people in, from budgeting, to controlling credit card debt (where I prefer to cut debt out completely) and building up an emergency fund, to the areas of insurance, investing, and ultimately teaching your kids sound financial principles. I hope you take the opportunity to read this book, and let me know your thoughts on it!