On a whim, I scooped off the library shelf the audiobook version of David Bach's Start Over, Finish Rich in the hopes that I would learn more about finances and investing. I'm certainly no financial genius, but Bach's advice was stuff I already knew. It is probably good advice for a lot of folks out there but it wasn't new for me.
Bach starts out by observing that most of us are disorganized when it comes to our financial record keeping with papers, if we have them at all, spread out all over our homes and offices. Lack of organization leads to bad things like missing payments and missed opportunities.
Bach lambasts us all for living beyond our means and accumulating credit card debt. And rightly so. Except for perhaps payday loans, credit card debt is one of the most vile forms of debt you can have and should be avoided at all costs. On the topic of credit, Bach also urges everyone to check their credit report (for free) at least once per year to ensure that it's accurate.
He's also an advocate of maintaining an emergency savings account with anywhere between 3 and 12 months worth of expenses depending on your comfort level. This is to protect you against something like an unexpected job loss. If you're wondering how you can possibly save that amount of money, Bach talks about the "latte factor" and how all of us could eliminate conveniences and small luxuries from our daily spending and save that money instead.
Bach is an advocate of real estate even in this post-Great Recession environment saying that it's a good time to refinance your mortgage, buy a bigger home while they're cheap, or add rental property as a source of income. His rule of thumb is that housing expenses should at most be 35% of your income.
Bach tossed out one statistic that amazed me. He said that 25% of the mortgage defaults in 2009 were just paper losses. People walked away from their mortgages simply because on paper the house was worth less than they purchased it for. It's not that they couldn't afford to continue making the payments - they just chose to walk away. Amazingly irresponsible because the assumption is that the home's value would never recover.
Bach also offered advise on saving for college including 529 plans. His rule of thumb is by the time the prospective college student is 17 only 25% of their college savings should be invested in stocks - the other 75% should be in more conservative investments.
Like I said at the beginning, this isn't bad advice and it certainly isn't complicated. It's just a lot less sophisticated than what I was looking for.
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2 comments:
I believe the 25% figure on owners walking because of lost value.But it is surprising, like you say.
I'm glad at least one other person was surprised by that stat. Otherwise, I'd begin to question my own approach to personal finances.
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