I recently finished reading another personal finance book, Smart Couples Finish Rich 9 Steps to Creating a Rich Future for You and Your Partner, by David Bach. I felt this to be a very well-rounded finance book that focused on the relationships in your life and how this influences your views and use of money. I appreciate that he didn’t just tell you generic steps to get rich but addresses core values and motivations. By identifying your goals, you have a power in gaining control of your finances. Typically my book overviews are just that, a cliff notes version of the book. For more of a review and recommendation whether to buy or not see this post at the Simple Dollar. I’ll be breaking now my overview into three parts, addressing 3 of the steps in each post. So let’s get started and dig in.

Introduction

In his introduction, he shares anecdotal stories of how his grandmother became an investor and built wealth and the financial struggles he and his wife experienced. He stresses that his goal of the book is to be your personal finance coach and provide an action-oriented road map for couples to take control of their finances and how to live and finish rich.

His goals are to teach the reader:

  • How to lean to earn together (without fighting)
  • How to look at your values and put what matters most in your life first
  • How to use what he calls the “Couple’s Latte Factor” to transform any income into a million-dollar nest egg
  • How to protect your family with a “security basket”, and fund your dreams with a “dream basket”
  • And finally, how to grow your income as a couple by 10 percent over the next nine weeks

Step 1: Learn the Facts and Myths about Couples and Money

  1. Myth: If we love each other, we won’t fight about money. Fact: Money has very little to do with love and a lot to do with how much you fight.
  2. Myth: It takes money to make money. Fact: It takes very little money to make money as long as you are patient and disciplined.
  3. Myth: We don’t make enough yet to be investors. Fact: Everyone makes enough to invest. ($10 day invested at 15% will be $1 million in 25 years)
  4. Myth: Taxes and inflation are now under control. Fact: Taxes and inflation are never going to be completely under control. (Inflation averages 4% a year)
  5. Myth: If we don’t talk about money, everything will work out okay. Fact: If the two of you don’t start talking about money, you’ll more than likely die broke.

He also had couples take the Financial Knowledge Quiz in this step. See this post for the quiz.

Step 2: Determine the True Purpose of Money in Your Life

In step two, he gets the couple to detemine what they value most in their life. Instead of approaching personal finance or retirement based on formulas or software programs, he feels this is better planned for by identifying your true values and motivations as this will lead you to a quicker path in accomplishing your goals in life. He asked thought-provoking questions such as what’s the purpose of money in your life? and what’s really important to you?

In order to create a sensible Purpose-Focused Financial Plan, you must understand what money means to you, what values it can help you achieve. Once you know this, you can quickly focus your time and energy on what matters most to you-not what society, friends, or advertisers say matters, but what you say matters. To put it another way, the process is basically a matter of looking really deeply at what is important to you, and them planning your finances around that.

Bach believes smart financial planning is really more of a life-planning process. In this step you’ll create your own value circle. The circle lays out what top five values are most important and what drives the decisions you make everyday. You should select your top five values based more on what your gut tells you than what you think ‘looks’ good to others. Don’t confuse goals for values. Wanting to be rich is a goal but wanting security would be the value.

Here is a word bank to help you identify some core values: security, freedom, happiness, peace of mind, fun, excitement, power, family, marriage, friends, making a difference, spirituality, independence, growth, creativity, adventure, fulfillment, confidence, balance, love, health…

Step 3: Plan Together…Win Together

With your value circle in place, you can now create your Purpose-Focused Financial Plan. Remember failing to plan together is the same as planning to fail together. Consider three fundamental truths of financial planning:

  1. You can’t plan your finances if you don’t know where you’re starting from.
  2. You can’t plan your finances if you don’t where you want to end up.
  3. In order to stay on track from your starting point to your destination, you have to monitor your progress.

In this step he introduces his FinishRich Inventory Planner to help you work out exactly where you are financially right now. The inventory planner helps you write out how many bank accounts you have and the balances, the same for your retirement accounts, investments, your cash flow and net worth?

Part of getting your financial life on track is cleaning up the mess and getting organized. He suggests the following file folder system: Find an easily accessible filing cabinet and set up handing files with folders labeled as follows for all your finance related documents:

  1. Tax Returns-Include 8 folders for the last seven years plus the current year. Place all W2’s, 1099’s, interest statements and returns in this file.
  2. Retirement Accounts-Create a folder for each retirement account you have, 401(k)’s, IRA’s, etc and include the statements.
  3. Social Security-Include your social security benefits statement.
  4. Investment Accounts-Create folders for each brokerage account, mutual funds, or individual stocks and keep the statements here.
  5. Savings and Checking Accounts-Add files for each separate account you have.
  6. Household Accounts-Here you will keep track of your House title, home improvement receipts, mortgage and utility statements.
  7. Credit Card Debt-Add a folder for each card you hold.
  8. Other Liabilities-This folder would include student loans, personal loans, car loans, etc.
  9. Insurance-This folder contains all insurance policies, home, life, car, health, disability, long-term care.
  10. Will or Trust-Keep a copy of your will and living trust here.
  11. Children’s Accounts-Include any college savings plans or trusts set up in your child’s name.

Now that you’ve identified your core values, cleaned up your financial life, you’re ready to define some clear financial goals. However, we need to take what we’ve learned thus far and use that knowledge as guidelines in determining what are goals are. Bach offers seven tips on how to define your goals:

  1. Make sure your goals are based on your values
  2. Make your goals specific, detailed and with a finish line. (include time line to reach goal and make it measurable)
  3. Put your top five goals in writing
  4. Start taking action toward your goals within 48 hours
  5. Enlist help (seek out agents and advisors, network with your acquaintances)
  6. Get a rough idea of how much money it will cost to achieve your goals
  7. Make sure your goals match your values…as a couple

Next week we’ll considering the next three steps in Bach’s nine step plan. Read Part II.

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