Just finished David Bach’s Start Late, Finish Rich. At 42, I thought it would be a good intro to Bach’s many treatises on personal finance. I’ll come right out and say I highly recommend this book. It was full of great information, and took an optimistic, yet realistic tone. I’ll try to touch on some key points.

Yes, because you started late, you are going to have to work twice as hard to put away some cash for later, but there are ways to make it less painful. Look at your every day expenditures. Is there something simple you can do without? He calls this the **“Latte Factor”**, because so many of us spend a few bucks a day on fancy coffee. My personal Latte Factor is buying lunch and snacks, instead of bringing them from home. I can spend up to *$12 a day* on soda, breakfast, lunch, etc. I’ve cut that down to once or twice a week, and it’s making a big difference. Not to mention the fact that my own meals are more healthy and delicious than anything I can buy.

**Credit cards:** it’s the interest. Bach gives instructions on how you can call your credit card company and get them to lower yours, or how to transfer your balance to a card with a no-interest introductory offer, and make a big dent in the debt before fees and interest kick in. That last idea is a particular winner. Imagine you have $3000 credit card debt, at 18% interest. Your minimum payment is $50/month (always pay more than the minimum! But for this exercise, we’ll stick to it). At the end of the year, your debt is $2940. Yes, you’ve just been paying interest. On the other hand, if you transfer to a card that offers no interest for a year (and don’t forget to cancel that first card!), and make those same $50, at the end of the year your debt is reduced by an additional $540. Maybe it’s time to take a closer look at those ubiquitous credit card offers.

**Don’t put off saving!** Yes, it’s important to pay off debt, but you still need to pay yourself first while you are digging out. There are a couple of reasons for this. The first is psychological. Saving feels good. Seeing your savings grow is a huge motivator to continue improving your financial health. If you tell yourself you must pay off all your debt before you begin saving or investing, the road may seem impossibly long. Giving up does no one any good. The second reason is financial. My math-fu is weak, so I’m going to use an example from the book:

Let’s say you had $300 a month you could either save or use to pay down credit card debt–or both. Assuming a 10% annual return on your money, if you used it all to pay down credit card debt for 10 years and then, once the debt was paid off, started saving the full $300 a month for the next 20 years, you’d wind up with a nest egg worth $227,811. On the other hand, if you allocated just $150 a month to paying down your debt and at the same time started saving $150 a month, after 30 years you’d have no debt and $339.073. In other words, waiting 10 years to start saving would reduce the size of your potential nest egg by NEARLY A THIRD!

And these numbers become even more important as you have less time in which to save.

**Buy a home.** Bach talks extensively about not only why you should buy a home, but how you can get into that first home if you are a renter. This is something we realized a couple years ago, and we finally took the plunge last year. I can’t tell you how gratifying it is to be living somewhere that is an asset for us, instead of just throwing money to the wind every month.

There’s much, much more packed into Start Late, Finish Rich. If you’re in your thirties or beyond, I can’t recommend this book enough. It’s a great source of ideas and inspiration.

luneray says

When the author discusses saving, does he mean putting it in an IRA or CD account where you can’t touch it, or actually having a stash of cash available for emergencies.

Assuming a 10% annual return on your moneyThat’s a pretty big assumption, innit?

Cat Connor says

It absolutely is, and that’s one of my peeves with the author. He pretty much assumes 10% returns on everything, because he also assumes everyone is using optimal investment vehicles. If you are, then 10% is not unreasonable, so I left that number in the post; however, while I still think saving at the same time as paying down debt is a great idea, that 10% doesn’t apply to someone who prefers more conservative investments.

VinTek says

The example from the book makes no mathematical sense at all.

Let’s say you borrowed $15,000 at a typical credit card rate of 21%. You’d be paying $299.90 per month. By the time you finished paying off the loan, you’d have paid a total of $20,987.70 in interest. But suppose you stretched this payment plan out to 30 years. Then you’d be paying $263.01 per month and end up paying a total of $79,693.60 in interest. I have no idea how you’d get an extra $150 per month for investments. Under this scenario, you’d only get $37 per month. Your investment is cut by more than three quarters!

Alright, let’s say then that you’ve negotiated a lower rate of 17% interest instead. To come close to paying $300 per month at that rate for 10 years, you will have to have borrowed $17,000. Then you pay $295.46 per month and end up paying a total of $18,454.72 in interest. But if you stretch the payments out over a 30-year period, your payments drop to $242.36 per month, and you pay a total interest cost of $70,251.33. You get $73 extra per month for investment, not $150. So your investment cut by more than half!

Okay, maybe the author assumes that your credit card interest rate is equivalent to your investment gains. So we’ll change the interest rate to 10%. In order to come up to the hypothetical $300 per month payment plan at this rate, you will have to borrow $22,500. With that, you pay $297.34 per month and a total of $13,180.70 in interest. Change the payment plan to stretch over a 30-year period and your payments drop to $197.45, with a total interest paid of $48,583.30. You get an extra $100 per month to invest. This is insane! At the end of 30 years, you’ve paid $26K more in interest and you’ve *still* knocked down your savings by a third!

Not to mention that as long as you’ve got a balance on that card, you’ll be paying interest on any additional purchases. I don’t care if your math-fu is weak or not. You have to run the numbers. What you don’t know *can* hurt you.

shhhush says

Those no-interest introductory offers don’t usually last a year, do they? I’ve heard that the interest rates on those cards end of being a big surprise. Nah, I think I’ll just double my payments and beg my bank to lower the interest rate for my good behavior.

J W says

VinTek, yu need to stop what you are doing and go back and read the book (if you ever read it in the first place!). You are trying to argue apples and oranges when the conversation is about grapes! Something that might help: either highlight the important stuff (which Mr. Bach does for you at the end of each section), or write it down on a legal pad to make your own set of Cliff’s notes. You obviously need them!