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BFN Book Review: The Automatic Millionaire

September 23, 2009 · Filed Under Book Reviews · 2 Comments 

A Powerful One-Step Plan to Live and Finish Rich

By David Bach

BFN Book Reviews

My, my, my, I have not done a BFN book review in a long, long time.  The main reason is that I have not finished a PF book in quite a while, actually.  I’ve started some, but have not been able to make it through any (busy, busy, busy). Well, I was poking around at the library the other day and picked up one I’ve been meaning to read for a while, David Bach’s The Automatic Millionaire, and it didn’t take me very long to make it through this book.

What is this book about?

This book is a general personal finance book.  It pretty much covers the basic PF topics you’d expect to see in an overview book and it doesn’t go into tremendous detail on them.  For instance, there is no detailed explanation of mutual funds or asset allocation or anything like that.  But its power is in its simple message – figure out how you want to save, invest, pay down debt, and then automate all of it.  Sure it’s pretty simple, but it is also powerful and effective.

Who is the author?

David Bach is a financial planner who has written a number of books and hosts seminars under the “Finish Rich” flagship.  His other books include Smart Women Finish Rich, Smart Couples Finish Rich, and The Finish Rich Workbook.

What are the best parts of the book?

As full disclosure, I must admit up front that this is my kind of book!  The main one that Bach teaches is automating as much as possible in your financial life.  I wholeheartedly agree with this concept and I believe that I am in much better financial shape today because I automated some of my financial strategy years ago.

Besides automation, another area where the author will grab some proponents is that he hates budgets.  If you hate budgets, then this is the book and the plan for you (and if you hate budgets and love automation, you are floating on cloud 9 when reading this book).  Unlike Dave Ramsey, Bach claims that budgets don’t work because they are unnatural and no fun.  Instead, he proposes avoiding budgets by basically automating as much of your financial plan as possible.

Another foundational concept the author presents is to pay yourself first. This, again, is critical to achieving your financial goals.  If you wait until the end of the month or year to save, there won’t be anything left to save.  Instead, you must do your saving at the beginning of the month before taking out any money for bills and living expenses.  And after you decide how much to pay yourself first, then you automate this process.

If you are asking, “David, where do I find this money with which to pay myself first?” well, he has an answer for you there.  He uses the term “The Latte Factor” to explain those things that, though they are small expenses, add up over time if we do them often enough.  He challenges his readers to track every penny of spending for a few days to expose their Latte Factor, whatever it may be.  He then proposes that they start by cutting down on these expenses and saving some of that money instead.

Finally, and what I found most interesting in this book, is that the author devotes a chapter to automated giving.  Again, I do feel that tithing is of critical importance to a financial plan (and I automate my giving as well).  He is very careful not to offend anyone with this chapter but he does discuss the importance of giving and mentions how those who give money away tend to have more money flow back to them.

Finally, Bach does a great job of encapsulating why we should be taking care of our finances and planning for our futures (hint, it’s not just to get rich and buy a huge mansion or something):

Becoming an Automatic Millionaire is not simply about accumulating wealth.  It’s also about relieving stress and worries about the future-about putting yourself in a place that enables you to enjoy life now as well as  in the future.  In other words, having an automatic plan should not only change your future, it should also change your present.

What is not-so-good about the book?

As I mentioned, this book is not a complete detailed overview of everything financial.  On second thought, maybe that is actually a good thing.  If you are looking for detailed investing strategies or asset allocations, then this book will not contain what you are looking for.  Well, that’s pretty much all I’ve got – there’s not much to complain about with this book.

So what is my recommendation?

I definitely recommend this book for a read – especially if you don’t like budgets and you like automation.  It is a quick read, the author keeps your interest, and he provides very practical advice.  In fact, he goes so far as to include numerous phone numbers and websites for specific companies to make it oh so easy to take the next step and get started.

In fact, this book actually inspired me to take action.  As a result of reading this book, I increased the contribution into my 401k.  I also thought about increasing my wife’s contribution and accelerating our mortgage, but haven’t pulled the trigger on those yet.  That notwithstanding, what is more important than a book that actually causes you to take action?  So grab a copy of the book or check it out from your local library (that’s what I did), but do read it.

Want to borrow this book? Search your local library

Want your own copy? Buy this book now at Amazon.com

Check out the books I’ve chosen for my virtual bookshelf

Weekly Bible Verse – Can you be Trusted with Little (and Much)?

September 21, 2009 · Filed Under Weekly Bible Verse · 6 Comments 

Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much.  Luke 16:10 (NIV)

This week’s verse is a nice follow-on to last week’s.  This week we further expound on some of the characteristics of being a good steward.  In this verse Jesus himself discusses the Biblical concept of how being faithful when we are given only a little shows how we will behave when we are given much.

Be a conduit

This verse also explains how God continues to bless those who are faithful more and more.  Think about it this way: I believe that God wants to use those who are faithful to Him in order to further His kingdom.  If every time he blesses you with more, you turn around and give more and more away, you are then a useful conduit of His blessing.  As a result, I feel that He is more likely to continue to bless you more and more as you’ve shown that you are faithful with a little and that you can be “trusted with much.”

Hoarding cuts off your blessing to others and eventually God’s blessing to you

Conversely, if you are wondering why you are not being blessed financially, maybe this verse explains that as well.  Maybe you are not being an effective conduit of God’s blessings.  If you hoard your blessings and as you get more, hoard even more of them, then what point is there for God to continue to bless you.  You are not accomplishing His work and the increased blessing might just stop at some point.  Remember, if you have not been faithful with a little, you are most likely not going to get the opportunity to be faithful with a lot.

Remember, more money does not solve money problems

On a slightly different topic, I think this verse also exposes the fallacy that having more money will solve any money problems you might have.  I firmly believe that if you have money problems when you have very little of it, then having a lot of it will not solve any of those money problems.  In fact, according to this verse, it will just multiply them.  Here’s an example: If you can’t control your spending when you have a little, you won’t be able to when you have a lot either (Don’t believe me?  Check this out).

In summary, don’t worry about all these possibilities of whether you have a little or a lot or whether you will get more or get less in the future.  Instead, focus on being faithful with what you have.  Glorify God through your financial decisions and use your resources, whatever they may be, to advance His kingdom.  God will take care of you and everything else.

God bless and have a great week…

Financial Peace University Lesson 1 – Super Saving

September 18, 2009 · Filed Under Financial Peace University · 1 Comment 

My wife and I attended our first Financial Peace University class Wednesday evening with a bunch of people from our church (check out the introductory post for this series) I was really excited to see the large turnout.  We listened to Dave Ramsey speak for about an hour (via DVD of course) and then had some brief discussion.  The majority of this week’s discussion was everyone introducing themselves and telling the group why they were attending the class.

I was quite happy to see that there is a great deal of diversity in the class.  The attendees range from an 18 year-old guy, to some young married couples, to some couples with young kids, to some couples with college-aged kids, to those already retired.  There was also significant diversity in the answers to why each person was attending.  Some people just wanted to do a check up on their finances, others wanted to get out of debt, some wanted to prepare for having children or sending them to college, and others wanted to get on track in preparation for retirement.  I said that I was here because learning about and discussing personal finances is one of my passions but I was most excited by the opportunity to take part in a PF class with my wife (she said she was there because I signed her up)  I’m optimistic that all this diversity will lead to some interesting and useful discussion over the course of the, um….course.

Baby Step 1 – $1000 in an emergency fund

In the DVD, Ramsey highlighted a number of topics that he will expound upon in later lessons.  For instance, he introduced his “baby steps” concept where he believes making small, focused changes will eventually lead you down the path to where you want to be.

He mainly focused on baby steps 1 and 3 this week.  Baby step 1 is to, as quickly as possible, put $1000 in an emergency fund.  If you are making less than $20,000 per year, then he suggested you change that number to $500.  He underscored that this is not an investment, rather it is insurance, so put the money in a safe,  liquid fund like a money market.  Then, DO NOT TOUCH IT.  It is there to provide peace of mind if anything unexpected happens (and he drove home the point that something unexpected WILL happen, so get ready).

When is a car crisis not just a car crisis?

I found it most interesting when he discussed what happens if you are not prepared for unexpected expenses.  For instance, say your car breaks down and you have a large repair bill.  If you are prepared, you just pay the bill without incurring debt and move on – car crisis solved.  If you are not financially prepared, however, then not only do you have a car crisis, but now you also have a financial crisis.  Imagine the stress on you if every time you have a crisis (car, health,whatever), it triggers an associated financial crisis.  Actually, since most people in the US do experience that phenomenon with each crisis, maybe we should imagine how much less stressful it would be to just take some cash out of your emergency fund and pay the bill….financial crisis averted.

Wealth building

Ramsey also gave an introduction to wealth building.  His two main points were that you must be disciplined about building wealth and you must remember that it is a marathon, not a sprint.  He also suggested that you automate your saving and investing and showed the power of compound interest with the famous example of 2 brothers investing.  One invests $2k from age 19 to 26 (a total of $16,000) and then stops.  The other doesn’t start until age 27 (I guess they’re twins) but then puts the same $2k every year until age 65 ($78,000 total).  Even though he has invested much more money, the late-starting brother still ends up with roughly $700,000 LESS (assuming 12% interest) at retirement.

My take on the first lesson

In summary, Dave is a very good speaker.  Did you ever have the experience where you’re at church for Bible study and in the next room that class is watching a DVD of Beth Moore teaching?  Sure, your class is interesting and all, but it never quite seems as fun as those women watching Beth (your main clue is the periodic uproarious laughter).  Well, Dave is very funny and, during the first lesson at least, is able to really hold your attention and make the lesson quite entertaining and enjoyable.

I’m on-board with his saving first mantra, I already have an emergency fund, and there wasn’t much time for discussion this week, so I didn’t learn anything terribly intriguing.  Still, I am very much looking forward to the next class  (though I am distressed to say that I will miss class next week.  My wife and I will listen to the CDs provided with the kit and I hope to post on the lesson and some of our personal discussion).

So, are you intrigued?  Does preparing for and avoiding stressful, debt-inducing, financial crises pique your interest?  Check back for more highlights next week or check out a class for yourself either at a local church or organization or sign up at Ramsey’s website to take an online version of the class.

Dave Ramsey’s Financial Peace University

September 16, 2009 · Filed Under Financial Peace University · 3 Comments 

My wife and I are participating in Dave Ramsey’s Financial Peace University at our church starting tonight.  I am sooo excited (I know, that probably sounds pretty weird, oh well)  I’m very excited because my wife and I are actually taking the class together.  I have read a bunch of personal finance books and blogs, talked to various financial advisors, discussed these topics ad nauseum with friends (just ask my friends), and even completed the Crown Financial class previously.  I have done all of these things by myself, however.  So, I am pumped about my wife and I going through this process together.

Financial Peace University in a nutshell

Here’s Dave Ramsey’s FPU in its simplest terms: debt is bad.  Now, obviously there is a lot more to the class (I sure hope there is as there are a total of 13 lessons!), but that is the crux of his message.  Here are some statistics he presents:

  • Only 32% of Americans could cover a $5000 emergency without going into debt.
  • A Parenting Magazine poll indicates that 49% of Americans could not cover even one month’s worth of expenses if they missed a paycheck.
  • The US savings rate for 2006 was -1% – the lowest since the Great Depression.
  • Total US consumer debt was $2.7 trillion in April 2006, the highest level ever.

Well, that’s not looking so good but contrast the thoughts aroused by those statistics with this teaser Dave presents in his workbook:

Imagine having absolutely no debt – no car payments, no credit card payments, not even a house payment.  How would it feel to actually get to keep your money instead of mailing it out to a dozen creditors month after month?

Ahhhh, doesn’t that sound nice?  If so, check back each week as we progress through the class (or better yet, find a class in your area to attend yourself).  I will be doing a post, a debrief if you will, on each lesson.  I’ll go over the main topics covered that week, mention some interesting points raised during the discussion, and touch on what I found to be most profound.  Well, this was the intro post…I’ll start with our first debrief tomorrow.

Ramsey wraps up the introduction like so:

It’s time to change your behavior, take control of your money, and finally take your place on the road to Financial Peace!

Woohoo!!  I’m pumped!  Let’s go!  (ok, calming down now…)

Weekly Bible Verse – Honoring God with Your Wealth

September 14, 2009 · Filed Under Weekly Bible Verse · 4 Comments 

Honor the LORD with your wealth, with the firstfruits of all your crops; then your barns will be filled to overflowing, and your vats will brim over with new wine. Proverbs 3:9-10 (NIV)

If you’ve read any Christian personal finance blogs or books lately, you’ve probably heard the term “steward” bandied about quite often (usually with the qualifier “good” in front of it).  So, what does it mean to be a “good steward” of your finances?  Well, there are a number of characteristics that go into being a good steward and I won’t touch on all of them here.  I do feel that today’s verse touches on one very important aspect of being a good steward, allow me to explain…

As the verse states, we are to “honor the Lord” with our financial resources.  In fact, we are to honor Him with the “firstfruits” of our crops (ok, if you’re not a farmer, substitute “income” there).  How can we use our finances to honor God?  What are firstfruits (and why does spell check tell me that’s not really a word?)?

Dedicating money to God’s Kingdom

Well, I think there are a number of ways that we can honor God with our resources.  The most obvious way would be to give some of those resources to organizations or people that are furthering God’s kingdom – like your local church or missionaries or organizations like World Vision, etc.  I do feel there are other things to consider as well such as not squandering your resources, especially on destructive items that certainly do not honor God.

Firstfruits?  But I don’t have an orchard

So, how does the concept of “firstfruits” apply in our current day and age?  I feel that the application lies in the concept of deciding beforehand how much of your income you are dedicating to God and then following through to cheerfully give that money away to support His kingdom.  You’ve probably heard the team “pay yourself first,” well, I think this verse is actually telling us to “give to God first” instead of waiting around and seeing if you have a few bucks left at the end of the month to drop in the offering plate.

Is this a “Prosperity Gospel” thing?

I admit that I have not exhaustively studied the Prosperity Gospel – my understanding is that it purports the mantra that one should give to God so that God is obligated to provide financial blessing back to them.  You can certainly use this verse to bolster your prosperity gospel argument, but I don’t fall into that camp so I’m not going to say that your motivation in giving should be to receive financial blessing back from God.

We are told here to honor God with our wealth and I feel that our motivation for doing so should be to simply support the church and provide means to spread Jesus’ gospel to more and more people.  I think that the reason the second part of this verse is here isn’t to entice you to give money to get more back like some cosmic pyramid scheme.  Rather, I feel it is God speaking to His people about their trust issues – if you are faithful to follow His directives and honor Him with your finances, there is no need to worry for He will take care of you.  I’ve heard numerous stories about people putting their faith forward by giving money to God and then having that money replaced almost miraculously through unexpected means.  God is good, you can trust Him.

God bless and have a great week…

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