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Start Late, Finish Rich – Part Three
Are you fast approaching retirement age and looking for “A No-Fail Plan to Achieve Financial Freedom at Any Age”? David Bach insists it’s never too late to be rich. In Start Late, Finish Rich, he shows you how to go from behind the eight ball to retiring rich.
Part Three: Save More
Most of us have heard the term “Pay Yourself First.” The thought process here is that if you don’t pay yourself first, you’ll never have enough left over to pay yourself. We have an amazing way of spending what we have in our bank accounts. But if you’re a late starter, you don’t just want to pay yourself first; you have to pay yourself faster first!
One of the best ways to do this is to take advantage of a pre-tax retirement account. If your company offers one, you’d be a fool not to take advantage of it. If your company offers matching funds, you should invest at least the matched amount. But, as soon as possible, you should maximize your contribution. Why do you do this instead of investing some of your after-tax dollars in a different account? Just look at the math. After the government takes out the taxes, you have less to spend or invest.
The next most important key is to make this automatic. If you have to physically transfer the money, it is likely that an event will occur in your life that will eat away the money you planned to invest. You want to make sure your savings are automatic so you can’t divert that money elsewhere.
You’re probably wondering how much you should be saving. Bach says you should save at least an hour a day of your income. If you start late (which you probably do if you read his book!) you should save at least two hours a day of your income. He insists that it’s easier to do than you think and that the key is just deciding to do it.
What about the budget? You might be surprised to learn that David Bach tells you to throw your budget out the window. Instead of focusing on what you can spend and putting limits on it, it teaches you to focus on how much you can save. If you take care of saving, spending takes care of itself. But you need to make sure that the saving is automatic.
What should you invest in? Bach says your life should be interesting and your investments should be boring. More money is lost investing in “the next big thing” that somehow doesn’t pan out. Most financial experts agree that the S&P has been fairly stable over the years. It may have had a few bad days, but if you average it, you’ll find a steady upward trend. His advice is to take the perfect pie approach and split your investments three ways: stocks, bonds and real estate. When one goes down, another of your investments will go up. By not putting all your eggs in one basket and diversifying into these three main areas, you can insulate yourself from those big drops when they come. I can testify to this investment method. In the recent fall in the stock market and mutual funds (which historically don’t both fall at the same time), my REIT was the only one that still made a good, consistent profit.
If you own a home, you have already started your real estate investment. If equity doesn’t equal one-third of your total investments, you’ll want to add a REIT investment to your portfolio. It offers some excellent resources for investment firms for both stocks and bonds.
If you’re renting, you’ll want to pay close attention as Bach explains why renters stay poor and landlords get richer. He shows you how you can buy a home, even with bad credit (although you’ll pay higher interest than if you had no debt). Still, he insists you shouldn’t wait to buy. Tables are provided so you can see how much house you can afford. Real estate is not just a good investment; it actually gives you something to show for the money you spend on a roof each month. The rent does not.
Again, Bach insists that this must be automated. He strongly encourages (as do most financial advisors) that you pay off your home in as little time as possible. By paying your mortgage biweekly instead of monthly, you can pay it off years earlier and save tens of thousands of dollars in interest.
By following David Bach’s tips on how to save more, you can make up some of the lost time and compound interest from not starting earlier. Just putting one or two of these ideas into motion will have a huge impact on how much more you can save for retirement so you really can start late and finish rich!
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