Every Sunday, The Simple Dollar reviews a personal finance or other book of interest. Also available is a complete list of the hundreds of book reviews that have appeared on The Simple Dollar over the years.
I’ll be the first to admit that personal finance workbooks never really clicked for me. I’ve tried reading and using a few of them over the years, but virtually every time, I felt like the forms and blanks within the book were constraining me and didn’t match what I wanted to do. I have always felt much better reading books until I understood the concepts, then doing things myself independently of the books.
Of course, such an attitude is a direct reflection of how my mind works. For other people – including a lot of readers of The Simple Dollar – workbooks are a great way to start going through the thought process of getting one’s finances in order. They do an excellent job of connecting the orderly process of one writer’s personal finance philosophy to a set of step-by-step tools for readers.
This, of course, brings me to David Bach’s Finish Rich Workbook. Bach has written a pile of books over the years, many of which I’ve reviewed (Smart Couples Finish Rich, Smart Women Finish Rich, and Start Late, Finish Rich, for starters) that all espouse the same general personal financie philosophy of cutting back on unnecessary expenditures and channeling that into long term financial goals. Yes, he’s the guy who came up with the much-debated “latte factor.”
Start the Journey to Living and Finishing Rich
The book starts off by checking to see what you know about your finances through a series of checklists. The items on these lists often push you toward expanding your knowledge in specific areas that you don’t have a good grasp of. For example, one entry says “I know whether my income would be protected by disability insurance should I (or my partner) become unable to work. If I have disability insurance, I know the amount of the coverage when the benefits would start, and whether they would be taxable. If I don’t have disability insurance, I know why I don’t.” If you’re unable to check that box, you’ve got a pretty clear conversation and thought starter right there.
Find Your Money
Here, Bach encourages people to essentially make their own net worth calculator by collecting together all of the things that they own (including financial accounts) and all off the debts that they have, then subtracting the debts from the assets. This is a very good thumbnail for seeing how your financial progress is going, particularly if you routinely calculate it and compare it to earlier results.
Create Your Purpose-Focused Financial Plan
I actually quite liked this section. The plan that Bach wants you to create starts off by you figuring out what the five things you value most in the world are, then assembling a goal related to each one that you want to achieve, then building your financial plan based on those five goals. For example, if I value education, I might have a goal of saving for half of my children’s college education, so how would I achieve that? I’d open a 529 (an immediate action), set up an automatic contribution, and watch it build over time.
Find Your Latte Factor
How do you pay for these financial goals? Bach’s solution is to dig through your life and look for ways where you’re spending money needlessly, then trim or eliminate them. The “latte factor,” of course, refers specifically to cutting out an expensive morning coffee, but that just scratches the surface of the idea. For many, this seems un-fun, but I tend to look at this as a challenge of sorts, seeking out things that I can cut without making life less enjoyable.
The Debt-Free Solution
Here, Bach encourages people to move toward a debt free life, which is a great financial goal for anyone to achieve. The plan is essentially a pretty standard debt repayment plan, but Bach does a pretty good job of walking a person through assembling a plan that works for them.
Pay Yourself First
So, you’ve got all of these goals and plans, but how are you going to make it work? One big tactic to use is to pay yourself first, meaning that you allocate money to these goals and plans right off the bat, then strive to make life work with what’s left over. This is a pretty strong strategy, as we often modify our lifestyle choices based on the cash available to us.
Create a Security Plan
Here, Bach delves into insurance issues, looking at things like life insurance, long term care insurance, and so on. These tools are there to make sure that all of your hard work doesn’t go for naught because of an unexpected event. Bach’s advice is largely good but occasionally delves into what I would consider unusual recommendations, so I would use this chapter as a jumping off point, not as a final answer.
Recapture Your Dreams
Here, Bach looks at the ins and outs of specific investments. How do you need to invest if you want a high return (with high risk, of course)? What about if you need a very safe investment that has a steady (but lower) return? Bach walks through savings accounts, bond investments, stock investments, and so on with the goal of matching specific investments to the goals you’ve set in the earlier chapters.
How to Hire a Financial Advisor
My advice is generally to not hire a financial advisor and figure out instead how to do things for yourself, but many people feel better hiring one anyway. This chapter largely serves as a research and interview guide for helping you to find an advisor that works well for you. The key piece of advice here is a home run: never delegate control of your money. Your advisor should never be able to make any financial moves without your explicit permission. Allowing such moves opens you up to be burnt badly.
Keep a FinishRich Journal
Bach’s final advice is to simply keep a journal describing your financial journey. Why do such a thing? Writing a journal entry makes you reflect on the things you’re writing about and helps you think about the journey ahead from where you’re at in a very intimate way. I’ve been an avid journaler of my whole life for many years and I find it very valuable for reflecting on my day just passed and the days ahead.
Is The Finish Rich Workbook Worth Reading?
This is a book that’s very strong in terms of holding your hand and walking you through each step, but it’s a little light on the depth of specific issues at times. If you’re looking for something that will help you get started, this is perfect. If you’re looking for something to answer all of your questions that you’ve ever had, this book will be a little light.
I would absolutely recommend this book to someone who works well with a guided environment… with one caveat. Some of the specifics in this book are a bit dated, as the most recent revision came out in 2003. The advice is still quite strong, but there are references to financial institutions that no longer exist and tax rules that have been superceded since 2003. A revision could be in order here. If it gets a revision, this book would get a thumbs-up as a solid beginner’s workbook from me. For now, it still gets a thumbs-up, but perhaps not a really strong one.