The Retirement Latte
My introduction to David Bach was when I saw him speak at a financial conference a few years ago. He told an interesting story about a couple who came in for a consultation with him when he first worked in personal finance. They were in their mid 50s, had two children who were fully put through college, had two properties fully paid off, and were ready to retire with over $1 million in savings. The impressive factor was that they had managed to build and sustain this comfortable financial position with a relatively small family income.
Bach simply didn't understand how this couple had managed to do so well for themselves, so he asked them. Their response: A lifetime of prudent saving and investing, paying themselves first each month.
As most of us know by now, budgeting, saving money and accumulating for retirement or major purchases doesn't have to be a soul-sucking life-altering commitment that means years of total sacrifice. But neither does it mean spending on our every whim. There is a wonderful balance between enjoying what today has to offer, and making sure that tomorrow will be taken care of as well.
I was impressed enough with David Bach that I read his book The Automatic Millionaire , and continued to enjoy his message and clean style.
Both in his book and on his speaking circuit, Bach mentions encounters with people who understand his advice, but find some reason why they can't start saving money now. They argue that sometimes it's impossible to get ahead and stop living from hand to mouth.
In answer to this Bach starts to dissect their daily routines with them. He discovers that rarely do they eat breakfast at home; they instead get a muffin and latte at Starbucks on their way to work. They might pick up a mid-morning booster juice of sorts, and half the time end up buying lunch too. That quickly adds up to at least $15/day spent on things that arguably didn't enrich their lives so much that they couldn't see their way to altering at least a few of these habits.
Bach has nicely summed this concept up into The Latte Factor. He argues that if you take the cost of a latte and muffin each day ($5 x 7 = $35/week, $150/month) and invest this money at a 10% rate of return, after 40 years you would have a whopping $948,611. (Interestingly when I plugged these numbers into his personal latte factor calculator , the number instead came to around $880,000).
Prudent investors might balk at a 10% annual average rate of return. The same strategy at a more modest 8% annual average rate of return would accumulate just less than $500,000. That's significantly less than what Bach's Latte Factor would have for us at the end of the day, but still a heck of a lot more than what we'd have if we just had consumed that latte and muffin every day instead!
In any case, I found Bach to have a great style both on stage and in his books. His writing is fairly casual, informative, entertaining, and his series of books are extensive enough to apply to just about anybody.
And for our Canadian readers, he has adapted many of his books to include the finer points of Canadian tax laws and investments into his material.
Some people will find his suggestions to be common knowledge or nothing new, while others will see their finances in a new light. As with any financial advice, it is always best to do your research, understand advice coming from the source (in this case a book) for what it is, and get a second opinion.