Start Late, Finish Rich by David Bach

(Review written 7/11/07)
I'm in the middle of reading Start Late, Finish Rich, by David Bach. I ran across a reference to his book in the middle of a financial article I was reading online, and the local library had a copy, so I figured, what the heck?

Bach sounds like a cross between Carlton Sheets and Robert Schuller, alternately giving real life strategies for retiring wealthy, and spouting aphorisms and slogans guaranteed to get you pumped up about your future. This, I think, would be a fantastic book for someone who's just getting started out in the working world to read (as a matter of fact, I recommended it to my daughter), as the strategies apply equally well to those starting early and those starting late. I think the best piece of advice in here is along the lines of "don't beat yourself up over your past mistakes."

I find myself fairly often saying, "if only I'd have bought that stock I was going to" or "if only I'd have bought that piece of property just outside town" or "if only I'd have gone into business for myself without that bad partner." The point that Bach makes is that even if you've fouled up, financially, in the past, that doesn't preclude you from succeeding in the future, if you just get with the program once again. This also has applications for those who haven't necessarily messed up big time, but who may have gotten temporarily sidetracked by the vagaries of fortune - like being unemployed for two years ;-).

This book hasn't dropped any astounding revelations on me; I've been doing most of it for years. I guess I should find it reassuring that a guy who travels around the country doing financial planning seminars is telling me to do what I'm already doing, for the most part.

He talks a little bit about finding your "Latte Factor." This is a term for some area in your life that you can economize by eliminating that, e.g., daily latte, excessive dining out, unnecessary luxuries (aren't luxuries by definition unnecessary?), and then using the money you free up by quitting those habits to fund your retirement. There are a couple of problems with this approach for me.

First, I've already pretty much eliminated the lattes of life from my life. I don't go to Starbucks, I pack a sack lunch daily, only going out to lunch for special occasions, with friends. I don't even eat dinner out on a weekly basis, perhaps twice a month at most, unless I'm on the road and have no choice. I don't go out to see all the new movies at the theatres, just a couple of major blockbusters a year, the rest I rent at the video store, and if we average one movie a week, I'd be surprised. So there's not a lot of fat left in my life to trim is what I'm saying.

Second, the numbers he tosses around seem geared towards a really urban crowd. He talks about $17.50 for a martini, $7 for a pack of cigarettes, and so forth. Here in the rural West, $5 for a cocktail is considered exorbitant, and I don't think I've ever paid over $3 for a pack of smokes. So, it's a little tough to believe the resultant investment numbers, when the savings figures just aren't there.

However, for the vast majority of people out there, I think, this may be an eye-opener, to really take a look at how much money we all fritter away on entertainment, socializing, eating non-nutritious snack food, and so on. At the very least, one should always be aware of and question habitual expenses.

Once you've saved all this money, Bach suggests that the best place to invest it is in your employer-sponsored 401K plan. At the very least, of course, one should put enough money in the 401K at work to gain the employers matching funds - that's just FREE money. On top of that, you contribute to the plan with pre-tax dollars, so you have to work less hours to invest a given amount each month that you would if you used money Uncle Sam had already tapped. So, it ain't rocket science, but it's good solid practice. My wife and I have been doing this for years, and while there ain't millions in the accounts yet, it's surprising how much money one accumulates systematically, if you just leave it alone to grow. He doesn't say it, but I will, "NEVER EVER touch your 401K! until you're ready to retire." The IRS will get back at you, big time.

As far as what investments to pick within the umbrella of a tax-advantaged plan, he's got lots of options, but the big picture is diversification. One wants to have a little bit of everything in your portfolio. I'm not going to get into the strategies for doing that, just read the book. However, I was reassured to note that he strongly recommends being invested in one of the Asset Allocation mutual funds, which automatically balances and rebalances your money across a pre-selected range of sectors, and which in some cases can even be automatically adjusted towards a different mix the closer you get to retirement age. This just happens to be the type of funds my wife and I had recommended to us by both our financial planners a couple of years ago when we were rolling over money out of our 401K plans from previous employers to IRAs. In our 401Ks at our current employers, we like to play the market a bit, just for fun, and actually actively manage our funds, but the IRAs are on autopilot.

Which brings up something else he said that I thought was pretty cool. "Your investment strategy should be extremely boring." The exciting, flashy, type of investment that your buddy is going to tip you off to at a cocktail party isn't going to cut it for the long haul. You might pick up a good return in a short period, once, or twice, but over the long haul the best bet is to just steadily invest in a broad spectrum of stocks, bonds, etc. Dial it in and leave it alone, except to occasionally boost your contributions if you're not maxed out yet.

Where I'm not too sure if I agree with him here is in his percentages. For someone my age, he's saying I should be putting 25% of my pay in a retirement plan. I'm at around half of that right now, and I think that may be sufficient. Of course, I may have a slightly different set of priorities. I'd like to enjoy some of the fruits of success now, rather than later, and I'm more interested in putting some money in an investment account that I can tap on demand, without paying any tax penalties, at any time that I want. Trying to strike a balance between having a retirement somewhat dialed in, and having sufficient cash reserves on hand to take advantage of other investment opportunities or purchasing opportunities that arise without warning. For example, if you need to buy a new car anyway, you're better off paying cash for it than financing it, in my opinion (I think Bach would agree). And, if you have plenty of cash that's in a semi-liquid state, you can take advantage of truly good deals, someone else's desperation to sell, or whatever. If you don't have cash reserves, you pay RETAIL. But that's just my personal philosophy.

The one thing upon which he and I agree fully is that you should never carry credit card debt. Keep those cards paid off, or don't keep them at all. Credit cards can be handy tools, if used properly, and sometimes there are things you just can't do without them, like purchasing items online, booking an airline flight, or renting a car. They're also great for unexpected expenses or emergencies, giving you a bit of a grace period to free up assets that are perhaps not quite liquid.

He's got some good stuff in here, too, about generating additional income. The first way, of course, is to get a raise out of your employer, and he covers very briefly some strategies for doing just that. There's also a lot of information about starting your own business in your free time, either doing direct marketing, running an EBay store, buying a franchise, or getting into rental real estate.

Bach's got a pretty good section about buying real estate, which was interesting. The wife and I had a piece of rental property for a couple of years, and took advantage of the loophole that allows you to sell a house you've lived in for two of the last five years without paying any capital gains tax. Real estate seems to be the only place I've made any money with my investments over the years. The only thing is that I hate being in the landlord business. I might be able to get back into it if I could find a good property management company to look after things and who weren't too expensive, and who had a good track record for finding stable tenants quickly.

The final 1/3 of the book is a bit of a hodgepodge of philosophical things. One of the principals he gets into fairly deeply is the idea of being a giver, and the concept of a tithe. Now, I'm quite familiar with the concept of tithing, having been a fundamentalist type of christian for a number of years, and I fully believe that being a generous giver really unlocks the blessings that God has in store for believers.

That said, I'm not so sure that I see any scriptural basis for it to apply to unbelievers. Bach almost approaches this from the old "give to get" philosophy, and claims that it's some sort of immutable law of the universe, but I just can't justify it. Even for believers, sometimes the formula isn't all that straightforward, and we just continue to give when we don't feel all that blessed because we're commanded to do so. In my personal experience, it's always worked out well, and it even seems that the money in the budget stretches farther, the more I give back to God and his people.

In fact, I've had several conversations with my good friend Law and my wife and a few others about this subject. I get a little (the feeling is hard to describe, sort of irritated/amused/thinking "Well, duh!") bugged when people whine about being strapped for cash, and I see them throw a five dollar bill in the collection plate on Sunday, when I know their household income is probably close to six figures. I'm thinking to myself, "You'll always be strapped until you start giving freely and wholeheartedly." Oh, and "sacrificially." If it doesn't hurt a bit to give, you're not doing it right.

Anyway, Bach attempts to provide a bit of balance at the tag end of things by talking about how to live life fully and be happy and all that rainbow and unicorn stuff. That's the subject of a whole different type of book, in my opinion, but maybe he just doesn't want to be lumped in with greedy, money-grubbing, capitalist swine. As I heard from a multi-millionaire acquaintance one time, "You can be poor and happy, or rich and happy, and, having experienced both, it's far better to be rich." Probably not an original thought, but always relevant.