Debt Free for Life is David Bach’s latest personal finance book and the first, as far as I know, that focuses entirely on the subject of debt.

David Bach’s most well known book is The Automatic Millionaire, which pushed the idea that the easiest way to “get rich” was to put it on autopilot. Automatic savings, whether to a bank account or a retirement account, is the key to a prosperous retirement. It’s one of the powerful pieces of personal finance out there. Since then, he’s written Start Over, Finish Rich which has spawned a whole “FinishRich” line of books, live events, and coaching.

In previous books, it was always about putting together a system that sets you up for the rest of your financial life. Set an automatic monthly contribution to your 401(k), check in each year to rebalance, and retire comfortably (that’s the skeleton, you have to put the meat on it by researching investments, etc.). This is one that focuses entirely on debt, how to pay it down faster, how to get out of it (from legally walking away to working with debt settlement companies), and how to stay away from accumulating more debt in the future.

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Online banking is wonderful. It’s difficult to believe that even as recently as ten or fifteen years ago, online banking was a rarity. It seems ubiquitous now (especially with so many online banks offering high yield savings accounts). My first account was at our local credit union and they were ahead of the curve in offering banking online services. You could check your balance online, transfer between credit union accounts online, and do all sorts of cool online stuff! (Unfortunately, they haven’t upgraded non-security related features in fifteen years, but they are a credit union after all)

Since then, the number of features offered by banks and their online banking services has blossomed. There are banks that operate entirely online, from opening an account to depositing funds, with interest rates that beat the long-term CD rates of conventional banks. It might seem like old hat to many readers, but it wasn’t that long ago that the idea of a 100% online bank sounded like a scam.

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On relatively inexpensive things, it’s oftentimes good enough to get a decent deal rather than hold out for the absolute best deal ever.

Every once in a long while, usually around large sporting events or during the hot summer months, my local Giant Food has a great deal of five 12-packs of soda for ten dollars. At $2 a pack, this brings the price per can of soda down to less than 17 cents a piece. This is compared to a regular price of $3.99 a 12-pack (I think, but I can’t be certain because I’ve never purchased it at full price before) which turns that seventeen cent piece of caffeinated heaven into a nearly 34 cent David Bach-worthy indulgence (okay, there was a bit of hyperbole involved there but you catch my drift). Those five for $10 deals aren’t very frequent and oftentimes Giant Food throws its customers a bone and offers the 12-packs at three for $10 or sometimes four for $10. At those prices, the unit cost of a can is only slightly lower but don’t carry the stigma of full price.

My strategy for weathering the droughts between good soda deals was to not purchase soda at all. It’s arguably better health-wise to skip the soda (one of my friends doesn’t drink soda on the advice of his dentist because the acidity damages your enamel if you let it linger) so I often go for more coffee when it’s cooler or plain water when it’s hotter. However, every so often I’ll crave a soda and then drop $1.29 for one of the plastic 20 oz. bottles. The end result is that it’s either feast or famine… I either get the deal and buy cans at seventeen cents or a bottle at over seven times the price (ignore the fact that I get eight more ounces because it’s not really relevant for the purposes of this discussion).

So lately I’ve been following my own maxim of getting a decent deal in the absence of the best deal. The five for $10 isn’t always available, but the 3 for $10 and the 4 for $10 is usually available and I pick up one to hold me over. By spending a little more, I prevent myself from going all the way over to the other extreme and get more value for my dollar in the long run.

Or I could quit drinking soda and stick with tap water, which costs nearly nothing.

Cut out the morning coffee at Starbucks!

Bring a bag lunch!

Stop drinking alcoholic beverages!

If you’ve been trying to find areas to cut back on your budget, those are likely one of the first three things you’ll hear suggested, right? The Latte Factor! It’s horrible that you’re wasting money on coffee you can brew at home! It’s a travesty! Okay, except you don’t have a coffee maker at home, have hardly any time in the morning to brew it, and if you don’t have it… oh boy, your office better watch out because you’ll be one cranky man/woman/beast. And bag lunch? Forget it, you don’t have time to make the lunch, let alone lug it to work, stuff it in the fridge and then eat it alone at your desk later! Alcoholic beverages? That’s the high point in the day, you can’t take that away! Plus, people who go to happy hours earn more… and you want to make more money right? Of course!

Of course, all that was tongue in cheek but the “excuses” are legitimate. It’s difficult to restructure large parts of your day just to save a few dollars but sometimes it’s important to do so. So, rather than make wholesale changes that you’re likely going to abandon within a few weeks, if you can even get started, try doing it incrementally.

Brew your own coffee on Friday. Friday is usually the laxest of all days and many people come in later than their usual start time. Take advantage of this by brewing your own coffee. If you don’t have a coffeemaker, you can buy one for around $20 and a hundred pack of filters for around $4. Then, all it takes is some coffee and you’re on your way to brewing your own coffee. If you really want to be efficient, set it all up the night before and set it to brew before you wake up. You can wake up to the wonderful smell of brewing coffee just like in the commercials! So just brew it on Fridays and you can hit Seattle’s Best Coffee the other four days. If you can save yourself the $3 on Friday coffee habit, that’s $150 a year in savings a year.

Resolve to bring in lunch on Monday. You have all weekend to pack, and cook it if you need to, yourself a nice meal so you can’t complain you have no time at night because you’ll have all day. Monday is also the busiest of work days as everyone catches up from the weekend so you can take advantage by eating at your desk and getting more work done. By cutting out one day of $7 lunches and replacing them with $2 lunches, you can save yourself close to $250 a year. You can get something really nice for $250 a year (or save it!) just by eating lunch on Mondays.

Bag lunch on Monday, brew coffee on Friday – get $400 a year that you can use for whatever you want. As for cutting out alcohol, sorry but you’re on your own on that one.

(Photo by ahmedrabea)

I’ve been a fan of Jeremy’s blog at GenXFinance for quite some time because I’m Generation X (or Y or whatever the heck I am), the exact target audience he’s trying to reach (and that he is). He’s an INTJ, loves long walks on the beach (*I made this up), and actually answers quite a bit of questions about himself on his About page (some of which are repeated below). With nearly 1700 1900 RSS subscribers (subscribe!) and an average of a thousand unique visitors a day, he can be considered among the more popular bloggers out there. He also has more experience in the professional personal finance realm than most bloggers, writes for About.com’s Financial Planning section and was really interested to talk to for this interview. We’ve swapped several emails back and forth on this and other topics and in general he responds pretty quickly and with a lot of information. If you ever have a question for the guy, don’t hesitate to ask him.

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What do Suze Orman, Robert Kiyosaki, David Bach, and every other personal finance expert out there have in common? They don’t know you but they know exactly what’s wrong with you and how to fix it. Suze Orman thinks you’re a moron, that you need tough love, and that those 0% financing offers from Ford are awesome. Robert Kiyosaki says that you suck like his poor dad (who isn’t real), you should aspire to be like his rich dad (who also isn’t real), and that you should buy one of his books. David Bach thinks, without the indignation that comes with a Suze orman, that you should get out of your own way and make things automatic. I think you should ignore personal finance experts… all of them.

You might think this is a self-serving Devil’s Advocate post – and it is, because personal finance bloggers aren’t experts. Then again, bloggers don’t treat you like crap and tell you how you need a wake-up call (that’s Suze), bloggers just write about themselves and invite you to check out how normal and bad at personal finance we are. Experts? Heh, totally different animal… here’s why you should ignore them.

Cater To The Masses

This isn’t really their fault, it’s a product of the marketing machine that drives their popularity. On the web, you have folks who talk about themselves and by nature fall into a small niche. You have the family of six, you have the bloggers battling debt (or just finished), you have a fee-only certified financial planner (JLP has never ever written a post selling his services), you have the husband-wife tandem, and you have a whole host of other blogs that fall into one niche or another. None of those sites are trying to be everything, they’re only trying to be themselves and therein lies their popularity. When you graduate, you perhaps find the debt bloggers and the tandem bloggers to be your thing. As you get older, you might find the family of six or the CFP blog more your style. With so many options, you can find one that works for you.

Too General

Since they cater to the masses, usually their advice is too general to be of true value. I’m not saying that bloggers are better in this case, I’m just saying that experts aren’t going to give you the level of advice that you need. I’m also not saying you should run out to a financial planner and pay for advice, I’m recommending that you ignore the big names in the bright lights and read articles written by folks who aren’t so keen on hearing or reading themselves. Read from the perspective that you’re reading valuable information that may not be valuable for you. Don’t read from the perspective that you’re going to do the next thing that comes out of an expert’s mouth. Experts in any field are wrong often enough that listening to them 100% of the time will result in disappointment.

Accessibility

A product of their popularity is the fact that experts simply aren’t accessible. You can certainly try to ask them a question but the reality is that an answer won’t be thought out and personalized. If anything, you might get it read on-air and get a simple 30-second response (or a 5 minute chastizing). Why is accessibility important? It’s not tremendously important but if you have a specific problem and you want to hear an experts opinion, the likelihood of them happening to answer that problem is zero.

Was that a compelling enough argument against experts? Maybe, maybe not, please let me know. Think I was too harsh of Suze Orman? (I don’t think I was as harsh as she generally is) Think David Bach shouldn’t have been lumped in with the experts? Fire away!

The Latte Factor was a term coined by David Bach to represent the idea that the key to reaching financial prosperity is to cut out the little things in life that you’re paying other people for, in this case coffee, and spend that money on yourself and your future. Mathematically, it involves taking the $5 cup of coffee each day, or whatever other discretionary spending you’d like to substitute in its place, and calculating how much that $5 would be worth in forty years if you were to have invested it. It’s not a particularly novel idea because everyone can appreciate that saving $5 each day and then compounding that at 11% each year for forty years will result in a huge number. But it’s value is in that it challenges you to examine the motivations behind your spending and how you could change those for the better.

It’s been shown that if you reduce the price of something from $9 to $8, people feel as though they’ve saved more money in that discount than if the original price were $8 and were dropped it to $7. The larger numbers seem to trick the consumer’s unconscious into believing more money is saved even though it’s not, percentage-wise. It’s also been shown that when people spend on credit, they’re able to enjoy the pleasure of the purchase without experiencing the pain of actually paying for the purchase, thus continuing to fuel our instant gratification mentality.

Now let us mix and match the two ideas into a super beast that many companies have come to love and take advantage of – large capital purchases on credit. When you make a large capital purchase, such as a house, or a car, or even a plasma television – you spend quite a bit of time researching in order to get the best deal. You do that because you can potentially save more because you’re spending more. You’re aware of the spending because of how much one single item is, thousands, and because of how you’ll be paying, almost immediately. (By “paying” I mean that your lifestyle will be immediately affected by this purchase, you will have to spend less in some places to service the purchase, even if you don’t pay off the entire balance immediately).

Now, what does this have to do with a $300 cup of coffee? It’s a mere five bucks, five bucks won’t bust your budget, and five bucks will hardly register on the radar for those who drink it every single day. It’s not a plasma television, it’s not a car, and it’s certainly not a house… it’s a drink that will perk you up, make you feel awake in the morning, and gosh darn it, you deserve it. However, that $5 purchase is a capital purchase when you extrapolate it over forty years.

If you compounded $5 over 40 years at 11%, that cup of coffee costs will you $325 minus taxes. Three hundred bucks for your cup of coffee. A $300 a day coffee habit would probably qualify you for Coffeeaholics Anonymous. Even if you compounded it at 8%, that cup still costs you over a hundred bucks. See, you care about the plasma television purchase price because it’s a thousand dollars now and you don’t care about the cup of coffee because it’s a mere $5 now; but won’t you plus forty years be wishing you didn’t have that cup of coffee? I would think that you in forty years deserves an extra $300 a day just for putting up with you for the last forty years, don’t you? (wrap your head around that little Philip K. Dick mess of confusion)

I think so.

I received a free copy of David Bach’s The Automatic Millionaire as part of a promotion from American Century (your fund fees at work) and this is a brief executive review of the book.

Executive Summary:
Automate the saving of retirement funds directly from your paycheck, monitor them periodically, and check back in thirty years to discover you’re a millionaire. Buy a home, don’t rent, and pay down half your monthly mortgage bill every two weeks to shave, on average, 7 years off your liability and tons of money.

Read on for a more in-depth review of the book.

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