Pay Yourself First
You have to pay yourself by automatically setting aside money that goes to your retirement account. Automating the investment process minimizes the friction.
“Life is not easy. But that’s not the only truth that matters in this context. It also happens to be true that it takes just as much effort to have a “bad life,” in which you don’t get what you want, as it does to have a “good life,” where you do. So given the choice, why not go for the good life?”
Latte Factor
An audience of David Bach claims that she cant save 10 dollars per day. So they reviewed the daily expenses and noted that the audience spends $5 on latte and muffin and another $6 dollars on juice and power bar. If she invested it in retirement plan that provides 10% per year of return then that would be $1.2 Million dollars by the time she turns 65.
Based on Millionaire Fastlane of MJ Demarco, this is considered as the slow lane in building wealth.
David Bach said that it is not only about cutting on your latte but considering small expenses like cigarettes, magazine subscription which could be redirected in paying your mortgage or retirement plan.
In the book I Will Teach You to Be Rich by Ramit Sethi, he is not supporting the latte factor but more into considering big wins. Big wins may be negotiating your salary, finding higher paying job and etc.
Latte factor may be a good tool on mindfulness. It can help you to reassess the small expenses that may not be helping you but rather hurting you like expenses on vices. If you cut back on harmful vices, you can save money while helping yourself out from such vices.
At the end of the day, it won’t do harm if you do both. Look for big wins while also being mindful on your expenses.
“Money is not an end in itself. It is merely a tool to help us achieve some particular goal. If the way we handle our money conflicts with our personal values, we are not going to wind up living happy and fulfilled lives.”
Make it Automatic
Making your investment automatic diminishes the friction. It helps you to be consistent in investing. As what the book The Psychology of Money, behavior matters more than the intelligence when it comes to winning the money game. Reasonable over rational will also keep you on the money game.
It was also suggested to automate your tithes and debt payments.
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Noteable quotes from the book
“Without values, goals rarely get accomplished . . . Values are the key. When you understand them correctly, they will pull you toward to your dreams — which is a lot wetter than having to push yourself!”
“It’s hard to be depressed when you are excited about your future, and that’s what dreams do: They make us believe that tomorrow is going to be better than today.”
“what determines your wealth is not how much you make but how much you keep of what you make.”
“It’s neither safe nor practical to assume that man in your life can be counted on to take care of your finances.”
“Warren Buffett once put it: “The most important thing to do when you find yourself in a hole is to stop digging.”
“Whenever someone tells me she is a procrastinator, I respond by asking them, “Did you eat this week?” Of course, the person will always answer yes. The fact is, no one procrastinates all the time. What you may be is a selective procrastinator — which means that if something is important enough (like eating), you are perfectly capable of taking care of it right away.”
“Albert Einstein once said that the most miraculous phenomenon he knew was the miracle of compound interest.”
“What would you do if you knew you couldn’t fail?”
“In fact, studies show that less than 1 percent of Americans write down specific goals for themselves each year. That’s a shame, because writing down your goals is powerful.”
“Social security was never intended to be a retirement plan. At most, it was designed to provide an income supplement.”
“… keep your nest egg growing faster than inflation isn’t all that hard.”
[Many people] plunge into all sorts of detail about what they want to accomplish, what investment they should buy, and where they want to be, without fist making sure they know where they stand now.”
“In all, working women currently earn more than $1 trillion a year and account for upwards of 52 percent of all earned household income in this country. There are currently over 9 million female-owned businesses in America, generating more than $3.6 trillion in annual revenues.”
“The fact is, none of us really has a choice: We are all playing the money game whether we want to or not. The only question is: Are we winning?”
“women are less likely to have a steady income stream over the course of their lifetimes. In some cases, that’s due to discrimination, but it’s also due to the fact that responsibilities such as child rearing and caring for elderly parents cause women to move in and out of the workforce a lot more than men do. In all, over their working lifetimes, women spend a total of 11½ years off the job on average, versus only 16 months for men.”
“When it comes to money, just having heard of something isn’t enough; you’ve got to know what it means.”
“It’s not what you know about money—it’s what you don’t know that can wipe you out.”
“Don’t ever put your entire financial fate in someone else’s hands.”
“Specificity transforms a vague dream into a concrete, achievable goals. If you can practically see, hear, feel, and smell a goal, the chances are excellent that you’ll not only know what’s required to make t real, you’ll actually do what’s required to make it real.”
“If you don’t know where you’re going, you might not like where you end up.”
“Remember, inspiration unused is merely entertainment. To get new results, you need to take new actions.”
“Love has nothing to do with money. It doesn’t matter if you love your spouse or partner more than anything in the world. If the two of you have conflicting values about money and make financial decisions that fail to accommodate each other’s feelings about the subject, you are going to have serious relationship problems.”
“There is no denying the lesson these numbers teach us. The future is going to be expensive.”
“Your health doesn’t just happen; it’s not something that takes care of itself as you go through life. You can’t leave your health in someone else’s hands, and the same goes for your wealth. They’re both completely in your hands.”
“If your money is not helping you make your life better, then something is wrong. Chances are you’re not making a connection between your values and the role obey plays in your life.”