The overall premise of this book is one that I completely agree with and is why I gave the book 4 stars. Being organized with your finances, discussing them as a couple, setting goals, and using compound interest are all smart financial moves. The reason the book doesn’t get 5 stars is because it is out of date (not his fault that it was written a long time ago, I’d just love a new edition) and he’s very optimistic in his math and calculating your return on your investments. Read below for more detail.
Chapters 1 – 3 Review
I appreciate David Bach’s emphasis in these first few chapters. He encourages couples to take control of their finances together, to discuss their financial goals, and to be on the same page with planning their future. It may seem like a no-brainer, but I personally know many couples that do not discuss their finances together, one spouse handles all the money, or both partners are a bit clueless on where their money is, what their insurance covers, or what their future looks like. There are a lot of obvious statements in these chapters, but they are important nonetheless. Chapter 2 (or Step 2 as Bach calls it), is about determining the purpose of money in your life. This is an important step that needs to be reviewed periodically and it led to a good discussion between my husband and me about what are our financial goals (aside from make more money) and what are we hoping to achieve that aligns with what we value in life.
Chapter 4
Step 4 is the now infamous latte factor. Bach explains how saving and investing a little each day (about the price of a Starbucks latte and bagel) can make you a millionaire. While his math is sound, and I do agree with his overall point, the simplicity on paper is not always so easy to practically come by. Even though he uses annual returns varying from 4% – 12%, he uses averages and ignores that you could have a year with a 0% return or a negative year then your final return is sizably smaller than his charts. Take this example, you invest $100 and have an awesome year and get a 100% return. You now have $200. The next year there’s a correction in the market and you lose 50%. You are now back to $100. Logically you would say that your return so far is 0%, but statistically a 100% return and a -50% return divided by two years is actually a 25% return on average. So according to many investors, it’s fair to say you can expect a 25% annual return and you’d have $125 after year one and $156.25 after year two thanks to the power of compound interest. Unfortunately, reality is harsher and more unpredictable than a simple average. This doesn’t mean you shouldn’t invest at all or compound interest doesn’t work, but let’s stay grounded and not bet on a 10% return year after year after year for 25 year, even if that is the average.
Chapters 5 – 7
Steps 5 – 7 are about building your baskets (retirement, security, and dream baskets). Bach gives many practical ways to invest which will help you get started. He acknowledges that getting rich takes decades, not months. He gives lots of useful information about what is a 401k vs roth IRA and basics everyone needs to know about investing.
Chapter 8
Step 8 is about avoiding what he considers the “Ten Biggest Financial Mistakes Couples Make”. This chapter did make me laugh a bit because I have done or am doing many of the things he says to avoid, so obviously I don’t agree with him 100%. I don’t think a 30-year mortgage should be mistake #1. While I agree that a 15 year is better, you can pay your 30 year off in 15 years if you choose. Mistake #3 according to Bach is “trying to get rich quick by day-trading”. I day-traded for 18 months and made a 35% return after commissions. I agree it isn’t a way to get rich quick, but I completely disagree that it’s similar to gambling in Vegas. I have a variety of reasons about why I’m not day trading anymore that I’ll write about soon, but I learned a lot and made decent money doing it. I also don’t think it’s worth mentioning in his top 10 mistakes because I hardly know any couples that have tried it! I had a hard time finding anyone to discuss it with or mentor me while I was trading. I also bought on margin (another mistake according to Bach) and don’t have a prenup (mistake #7 according to Bach). (-:
Chapter 9
Step 9 is how to increase your income by 10% in 9 weeks. I was a bit disappointed in this chapter. It’s basically that you ask for a raise. While I do agree that most people need to take control of their salary and take steps to get themselves a raise, I was hoping for a bit more in terms of helping me invest or ways to earn additional cash.
Should You Read This Book?
While my review mostly points out the things that I don’t agree with Bach on, I still do recommend reading this book. It is a quick easy read that will get you motivated to take control of your finances and help you realize that you should be and can be investing right now. Even if you aren’t in a relationship, the financial concepts are still the same. You can skim over the couples stuff and still get a lot out of this book. Even though my husband and I are very open with our finances and on the same page, this book still led to some good conversations that we hadn’t had in a while. If you are newly married or engaged, then I’d highly recommend buying this! For the rest of us it’s a good reminder that money management doesn’t need to be overwhelming and there are simple ways to plan for our family’s future.
This Post Has One Comment
Comments are closed.
i’ve only read one book about debt and it was really interesting. i never thought about reading more books about finances until now. thanks for the review!