Last week, we look at Dave Ramsey and some of his thoughts on personal finance. This week, we’ll look at another financial guru David Bach. Bach is mainly known for his Automatic Millionaire book and coining the phrase ‘latte factor‘. He’s written six bestsellers with over 4 million copies.
David Bach on Building Wealth
David Bach points out that building wealth can be as easy as sacrificing some small items from your budget and investing the rest. He uses the latte factor as a way to reach success.
What is the Latte Factor?
The premise of the phrase is if you cut back on small frivolous items, such as lattes, you can then use that money to earn more by investing it.
Automating your finances is a HUGE part of Bach’s system. Online Bill Pay is agreat way to arrange your bill and debt payments.
David Bach on Getting Out of Debt and Credit Cards
David Bach has a plan for getting out of debt. He describes it in Chapter 7 of his Automatic Millionaire book under ‘Automatic Debt-Free Lifestyle’. I was a bit surprised that this chapter came AFTER the home ownership chapter. Some personal finance gurus like Dave Ramsey and Ramit Sethi put credit card debt reduction BEFORE home ownership.
His debt reduction advice is simple to follow. He explains it step by step.
- Stop digging. Like Dave Ramsey, David Bach advocates getting rid of your credit cards from your wallet.
- Renegotiate your interest rate. Bach points out that you can help yourself even more if you can lower your interest rate, even if it temporarily.
- Split your ‘Pay yourself ‘ money for debt reduction AND savings. David suggests take the 10% that is allocated for you and use it for both saving/investing and the other half for paying down your debt.
- Use the DOLP system to pay down your debt. The DOLP system is method of determining what order to pay off your credit cards. He says divide each card’s balance by the minimum payment. Rank it from lowest to highest DOLP number and attack using a debt snowball method.
- Automate it. As with the rest of his book, David heavily encourages automating your finances.
What David Bach Says About Buying a Home
David Bach believes that owning a home is a big component of building wealth. He presents his six reasons why owning a home is a great investment. Ramit Sethi may argue that not everyone benefits from homeownership, you have to run the numbers.
While he mentions a 30 years mortgage; he shows that paying it off early can save a lot of money. He offers some suggestions on accelerating your mortgage repayment by using bi-weekly payments.
My thoughts on David Bach
I do think being more conscious of your spending can be an aid to redirecting your money to more valuable things. While having some small sustainable wins is good; I personally like having some big winds to get the ball rolling.
Automating your financial system is a great way to work from my personal experience. It saves you a lot of time and reduces your stress.
I didn’t really agree with some of his arguements on buying a home, especially as he was giving his reasons why homeownership is the way to go. It seemed like a blanket statement.
In some urban areas, buy a home may not be a wise choice. He assumed that a mortgage payment would be equal to a rent payment, but that may not be the case in some area.
If you plan on moving in a few years, you may also want to hold off on buying. You can use this rent vs buy calculator to get an idea of what the numbers would be.
What are your thoughts?
Do you listen to financial gurus’ money advice? If so, which one? Is there a financial guru you’d like me to review?
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Not bad; this pretty much sums up my feelings on David Bach (and by the way, thanks for taking my suggestion as to which financial guru to review). Much of his advice on automating your savings and being aware of all the little expenses you might have is quite good. His DOLP method leaves much to be desired, however (I compared it to David Ramsey’s lowest balance method as well as the standard highest interest rate , and the DOLP had little to recommend it.
As for his comments on houses, he does seem rather more intent on selling houses than helping people make the right financial choices regarding their residence. His Automatic Millionaire Homeowner was more cheerleading about homeownership than a look into all the expenses that are involved.