The Automatic Millionaire

Magic of regular investing seems to have been with me for a long time. Mostly due to grandmother, who said that not a single person in our family would end up well if not her habit of money saving.

According to her, if you know the power of habit, you’re saved. We knew it, but just in case we were somehow reminded Every Single Time we meet in a family circles or even in the occasional phone conversations.

Now that I’m starting fully blown lifestyle of 8am–… for 50 weeks, I wanted to explore approaches of other people. I picked Bach’s book. One of the reasons is that my knowledge about financial side of life in the US is limited, and understanding it consumes great deal of time..

Anyway, Bach outlines the Latte Factor–little sums of money disappearing from your wallet, which lead to lots of money spent without you realizing. He doesn’t suggest making yourself an enemy of your savings. He just points out how small sums of money add up to bigger sums of money. Thus, as a response, he formulates the rule of paying yourself first.

Anything that can be automated with personal finances must be automated, according to Bach: money saving for “black hour”, savings account, mortgage, bills.

Book made me think about 401k. Maybe I should spend more time on analyzing it, and figuring out if not freezing money in the US and still saving would be an option. If readers have suggestion for further lectures on the topic, feel free to e-mail me.

The concept of paying yourself first I’ve heard from “Rich Dad Poor Dad”. The thing is that there would be an agreement in between two authors, if there was no “house” section. Rich Dad explains ownership of the mortgage as a problem and letting banks earn on you. However Bach sees it differently–as using other peoples money to boost your earning ratio as if it was Forex.

Honestly I need to revisit both books to fully understand both points of view. One is sure: I’m closer to “no loans” view..

Anyway–I’m in “sorta agree” camp, but I don’t think these rules apply within … some areas and to certain time in your life. You see: in San Jose, California the cheapest and most sketchy places start from hundreds of thousands of dollars. You can live there, but you have no life–there’s no entertainment, no cultural life, no music, no anything. So lets say you bite your lip and start living there. Lets say you somehow manage to lead your life with saving regularly, which even with decent engineer’s salary would mean you’d be living decent lifestyle, but nothing close to what you deserve.. And lets say that by agreeing for cut-back of expenses (bear in mind: it’s being written by minimalist), you don’t let yourself to buy Latte for $3.00 sometimes. This leads to a crappy life in your 20’s, which nobody will give you back. I played with the calculator:

http://www.ingdirect.ca/en/tools/calcs/Savings_Calculator_ISA.html

and the only thing which I think is worth trying is the last point of Bach’s book mentioned: if you have two choices in your life, it’s worth trying the riskier one. Since nearly always there’s a time to recover from disaster, at least you won’t regret anything on your deathbed.