The best-selling book, Smart Women Finish Rich, by David Bach presents the following seven steps to living well and becoming financially independent: 1. Learn to Earn, 2. Put Your Money Where Your Values Are, 3. Figure Out Where You Stand Financially, 4. Build Your Retirement Basket, 5. Use the Power of "the Latte' Factor," 6. Build Your Security Basket, and 7. Build Your Dream Basket.
In Step 1, Learn to Earn, Bach recommends trying to learn one new thing about money every day and reading two investment books each year. Numerous personal finance information sources exist such as classes and advice provided by Rutgers Cooperative Extension's family and consumer sciences program, financial services firms, the Internet, and print and electronic media.
Step 2, Put Your Money Where Your Values Are, encourages readers to follow their values when making spending decisions. Key questions to ask are "What's important about money to you?" and "Why is it important?' For many people, the desire to not feel so rushed and to have a life conflicts with the reality of work pressures and a harried lifestyle. Many people are not living a life that reflects what they say they value.
Step 3 is Figure Out Where You Stand Financially. Bach encourages readers to complete a "Find Your Stuff Checklist," which provides guidance about how to file and store important financial documents. Another resource in the book is a "Financial Inventory Worksheet," which includes spaces to list personal data, savings and investments, retirement accounts, real estate, insurance policies, and household net worth (assets minus debts).
Step 4, Build Your Retirement Basket, emphasizes a common recommendation of financial planners: pay yourself first. Due to their lower average lifetime earnings, longer life expectancies, and career breaks for family care-giving, Bach recommends that women save 12% of their gross earnings, compared to 10% for men. The time to start is today.
Step 5, Use the Power of "the Latte' Factor," means simply adding up the cost of small expenses, such as lattes' at a coffee shop, to see how they add up. An example is given of $7 of unnecessary daily expenses, which totals $210 per month and nearly $2,520 per year. If that $2,520 were invested with a hypothetical 10% growth rate, someone would have $1.3 million in about 40 years. Small expenses add up and provide the dollars to invest for your future. "The latte' factor" alone almost funds the $3,000 contribution that is allowed in 2003 for a Roth IRA.
Build Your Security Basket is Step 6. This means having some money set aside for emergencies such as the loss of a job. Another key component of financial security is adequate health, disability, and long-term care insurance.
Finally, Step 7 is Build Your Dream Basket. This means defining your financial goals and selecting appropriate investments that match their time frame. For example, money market mutual funds and CDs are good for goals less than two years away and bonds, Treasury notes, and bond funds are suited for 2 to 5 year goals. For longer-term goals, stocks, stock index funds, growth funds, and balanced funds would be appropriate.
Additional information about Smart Women Finish Rich can be found at www.finishrich.com. Bach also has written a similar book for couples. These books, like many others, stress commonly recommended financial principles: spend less than you earn, pay yourself first through automated savings, live (and spend) according to your values, base investment decisions on the time frame for financial goals, and take advantage of tax-deferred retirement savings plans.