Saving money can be really hard.
I mean really really hard sometimes.
But if we can do it even if it's just saving a little bit of money over time it can turn
into a fortune.
Hey everyone Daniel here from Next Level life and today we're going to be covering David
Bach's book the automatic millionaire.
The book that takes all of that conventional wisdom surrounding budgeting and saving and
throws it out the window.
Essentially this book tells you that budgeting is not actually necessary to achieve financial
success.
At least not budgeting in the conventional sense.
This book Works off the idea that you need to pay yourself first.
And by pay yourself first I mean actually first before taxes and all that as well.
This is accomplished by trying to make your finances automatic or as automatic as possible
anyway.
A great way to do this is setting up automatic contributions to your 401k because that is
using pre-tax dollars so you really are paying yourself first.
It also gives you an added incentive to not touch the money because you'll get penalized
for pulling it out just like you would in an IRA.
Now that all seems well and good but how are you to start contributing to your 401k if
you don't have any money to spare?
How can you pay yourself first if you barely have enough money to get by as it is?
This brings us to probably the most famous Financial Concept in this book and that is
the latte factor.
The latte factor is a little bit different for everyone because basically what it is,
is some item that you buy regularly that costs you just a little bit of money each time but
over time those expenses add up to Big sums of money.
Big sums of money that if they were invested in your 401k instead of in buying the item
you may very well be able to retire off of that cash.
Now the name latte factor comes from the first item that was used as an example in the author's
class.
But the item in question doesn't have to be a latte again it's just an item that you personally
by regularly that is fairly inexpensive but since it is bought regularly over and over
again it adds up to a lot of money.
So for you it could be something completely different maybe it's buying bottled water
or heaven forbid cigarettes.
Again your latte factor is not necessarily going to be the same as someone else's and
only you're going to know what it is.
But getting back to the concept it's probably best Illustrated with the example used in
the book itself.
Let's take Kim for example.
Kim is two years out of college making $35,000 a year living in San Francisco.
Understandably she's living paycheck-to-paycheck how in the heck can she find money to pay
herself first?
Well let's go through Kim day.
She wakes up gets ready for work, leaves, and stops at Starbucks on the way to the office.
She picks up a latte for $3.50 but in her Rush to leave for work in the morning she
did not actually make herself a full breakfast so in addition to the latte she gets a fat
free muffin to tidy her over until lunch, the muffin costs $1.50.
She makes it to work and then at break she goes to get some juice from Jamba Juice which
costs her $3.95.
However she's kind of hungry because all she's had is that fat-free muffin so she also gets
a power bar to hopefully make it through the rest of the day.
The power bar costs $1.75.
Even if she makes it through the rest of the day without an actual meal she still spent
$11.20 that did not need to be spent had she just made a good breakfast in the morning
or even the night before and then warmed it up in the morning.
And drank the coffee that is probably at her office or just made herself at home and then
maybe drank some water at lunch instead of the juice.
Now just for the sake of argument let's say that instead of spending that $11.20 every
day she instead invested it into her 401k plan at work.
How much money would she have by the time she reaches 65?
Well assuming that she got a return of about 10% which is not unrealistic over that long
of a period of time if you include dividends.
I know for those of you who have been following my videos for awhile would know that I usually
Champion the 8.6% per year return for the market on average but keep in mind that 8.6%
does not include dividends.
So anyway at a 10% rate of return Kim would have a net worth of $1,353,837.97 at age 65.
Suddenly those little expenses are looking pretty big now huh?
And when you get right down to it that $1.3 million is actually kind of a lowball estimate.
because most companies nowadays will match at least a portion of what you put in meaning
you may actually end up with quite a bit more money in the end.
It's just really amazing how saving something as little as $10 or $11 a day if done consistently
over time can leave us with a fortune.
So that was the automatic millionaire by David Bach but I want to know what's your latte
factor?
Leave it in the comments below and if you learned something from this video and liked
what you saw be sure to subscribe and until next time thanks for watching and have a great
day.