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Have you ever read a book on financial planning? I have to admit, I have not read many. Mostly because they tend to be dense and read like stereo instructions.
That said, I recently read a book called The Latte Factor by David Bach. This book teaches financial planning and money saving tactics through a parable. You follow the story of a young lady named Zoey and learn tactics for planning financially for the things you want to do in life right along with her as she gets advice from the wise people in her life.
Truth be told, I actually really enjoyed this book. I love how David taught the financial concepts through a story instead of boring numbers and charts that you can’t relate to your actual life. This is coming from someone with a masters in math and actually enjoys numbers.
As I was reading this short book, I could relate to Zoey. I know the feeling that you can’t get ahead. You’re just getting by and look forward to the next raise only to realize that once you get it, it still doesn’t feel like enough.
Through Zoey’s story, Bach teaches us concepts around saving money for the things we want in life and future goals, while still spending money on what is important to you right now.
One way this has impacted my own life is in paying off student loans and saving for retirement. I was blessed to not have any student loans from undergrad, but that changed when I decided to get my masters degree. I ended up taking a few loans to help cover the cost.
Like many people, my priority was to pay off the debt. I hate having the feeling of owning money hanging over me. So, each month I would pay more than the minimum payment on these loans in an effort to pay them off more quickly.
In this book, Zoey learns about different rates of return. The long term return on many retirement accounts is in the 8-10% range. Some can even get you 12%.
Through the magic of compound interest money can really build up over time and over the long term you can truly build wealth. There are charts in the back of the book that show how a small amount invested over time can build up to a large sum of money over time.
So what does this have to do with my student loans? Well, from this book I realized that over paying my student loans isn’t the best use of my money. While it may be nice for a clear mind to have the loans off the table, it’s probably not the best way to spend the cash I have on hand.
Even if we look at the low end, the rate of return from my retirement plan is averaging at least 8%. If that is the case, then it makes more sense to stop over-paying my loans and invest the over-payment into my retirement plan.
The interest on my loans is just over 4%, so even though I might be paying more interest overall, I’ll still end up on top since that money will be earning even more interest when it is invested at the higher rate. I’ll be paying 4% interest but earning 8% interest. So overall I’ll be getting 4% instead of nothing.
That is just one of the many takeaways this book has to offer. It is a quick read, which I love, because as a busy mom who has time for anything else. Its not giving complicated buy/sell investment strategies but giving you simple tactics anyone can use to save money for the future and still enjoy life today.
I definitely recommend picking up The Latte Factor if you have ever felt like you are unable to afford the life you want to live or unable to save money for the future. This book shows you how to live a rich life today and still save for a fun financially free retirement.
So many people have goals related to their finances and this book can really help you make small changes that will have a big impact on your future life.
Do you have concerns about your ability to save for the future? Let me know in the comments.