As we move forward with our final portion of the overview of David Bach’s Smart Couples Finish book you can catch up on the previous to two posts here and here. Let’s continue on with steps 7-9.

Step 7: Build Your Dream Basket

This step is about saving for your dreams, not about earning more money, or setting goals or getting more organized. Here you will identify what your dreams really are. Do you want to have a vacation home? Take a trip of a lifetime? How will you afford to accomplish your dreams? A systematic investment approach is the best plan. We’ll need to determine another fixed percentage of your income that you’ll dedicate to your dream basket. Make sure whatever mutual fund company you set this account up with that it is automatic, don’t rely on yourself to transfer the money. Have it automatically deduct itself each month. A good starting point is to save 3% of your after-tax income, before you pay the bills. If 3 sounds too steep, try starting with 1% and every six months increase it an additional percentage point. Mutual funds are probably the best investment vehicle for this type of savings. They offer instant diversification, they’re cost-efficient, are liquid and easy to monitor.

  • Short-term Dreams (Less than 2 years) Keep your money in a money-account, it remains liquid and conservatively earns 3-6%.
  • Mid-term Dreams (2-4 years) Try bond funds, or balanced funds, which usually earn 1% more than a money-market.
  • Long-term Dreams (4-10 years) An index fund is where you want to be here.
  • Really long-term Dreams (10+ years) Bach recommends variable annuities and DRIP’s.

Step 8: Learn to Avoid the Ten Biggest Financial Mistakes Couples Make

  1. Having a 30-year mortgage. While 30 year mortgages offer a lot of flexibility they are rip off when it comes to the amount of interest you will pay over a 30 year period.  You would have paid nearly two and half times the original loan amount. You should always overpay your 30 year mortgage, each month send in an additional 10% and you can lower the length to around 22 years and save tons in interest. The tax write right off for mortgage interest isn’t worth it. You’ll end up paying $100,000 in interest to save $28,500 in taxes. Typically, people who pay off their mortgages early in say 15 years usually take retirement 7-10 years earlier.
  2. Not taking credit card debt seriously. Check your credit report immediately and look for any inaccuracies. A bad credit report will ruin your chances of qualifying for good interests rates on loans.
  3. Trying to get rich quick by day-trading. Accumulating real wealth takes years, even decades. Day trading doesn’t work because of the commission charges, short term capital gains taxes and poor odds.
  4. Buying stocks on margin. Don’t borrow money from the bank to invest. If the market is down they margin call you and you’ll most likely lose the majority of your portfolio.
  5. Not starting a college-savings plan soon enough. College funding comes after your security basket. A good place to get started is with a UGMA or UTMA account, 529 plan or educational IRA’s.
  6. Not teaching kids about money. Finance is not taught in schools and should begin at home.
  7. Neglecting to sign a prenuptial agreement. A prenup should be used whenever one spouse makes significantly more or has more assets. Although unromantic, it’s a protection.
  8. Not having a greater purpose beyond the two of you. True happiness come not from monetary accomplishments but committing yourself to a greater purpose, be it a religious calling, a charity, or community project.
  9. Not figuring out who’s responsible for what. Each partner needs his or her own money and jointly they can share an ‘our money’ account. Make sure you spell out who is responsible for paying which bills and keep in mind there is not hard and fast rule about it.
  10. Not getting professional financial advice. 89% of investors with portfolios worth more than $100,000 prefer to hire a financial advisor. Make sure you hire locally, get a referral, check out the advisor’s background, ask their philosophy, trust your gut and be prepared to pay for the advice you get.

Step 9: Increase Your Income by 10 Percent in Nine Weeks

A faster way to finish is rich is by increasing your income by 10%.  Are you being paid what you are worth at work?  Are you overdue for a raise?  You need to be as proactive with income as you are your career.  Spend the next nine weeks either proving your value to your boss or searching for a new job that will pay 10% more than your current salary.  If you are self-employeed, raise your prices by 10%.  Now write down exactly how much you want to earn.  Begin organizing your life and your office.  Make sure you can quantify how you add value to your employer.  Before approaching your boss, practice asking for a raise out loud first.

And that completes David Bach’s nine step program for finishing rich.  I did enjoy the book and found quite a lot of the information to be valuable.  I, personally, prefer cold hard numbers when speaking in terms of finance, so I appreciated his formulas for what percentage of your income should go into which basket your saving for.  I think other personalities would find the earlier chapters very helpful in ensuring you reach your financial goals by approaching them based on your values and dreams.  I’ve heard it said if you’d read one David Bach book you’ve read them all.  So be sure to select a book that fits your current situation.  His other Finish Rich series writings address women, those starting later in life, tree huggers, homeowners and obviously couples.  I do recommend reading one of these in your path to personal finance.

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