Learning From Literature

Smart Couples Finish Rich by David Bach

Cover of Smart Couples Finish Rich by David Bach

Smart Couples Finish Rich: 9 Steps to Creating a Rich Future for You and Your Partner by David Bach is a personal finance book published in 2001.

The number one cause of divorce is money. It is not very surprising, considering most couples rarely talk about money… unless they are fighting about it. Bach’s book is meant to be the remedy to this all-to-common issue.

The main idea is that all couples should work on their finances together. Many couples go through life without making plans for the future together. Each assumes that somehow the other knows and agrees with what he/she wants to happen. It is essential to be on the same page with your partner – knowing what the other person feels is fair, who is paying what bills, etc. When people work together to accomplish a goal, they can usually achieve it twice as fast as either of them would have working alone — this is especially true when it comes to money.

Purchase the book by clicking this link!

Enjoy!

Table of Contents

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Step 1 – Understand The Facts & Myths About Couples and Money 

No. 1 – If we love each other, we won’t fight about money 

Reality – Money has very little to do with love … and a lot to do with how much you fight

  • Think:
    • How you spend money has nothing to do with how much you love each other
    • The two of you were probably raised differently when it came to money
    • The two of you probably value money differently
    • The two of you probably spend money differently

No. 2 –  It takes money to make money

Reality – It takes very little money to make money… as long as you’re a patient and disciplined

No. 3 – We don’t make enough yet to be investors 

Reality – Everyone makes enough to invest 

No. 4 – Taxes and inflation are now under control 

Reality – Taxes and inflation are never going to be completely under control 

No. 5 – If we don’t talk about money, everything will work out OK 

Reality – If the two of you don’t start talking about money, it’s only a matter of time until something bad happens

  • The fact that most of us are not raised to talk about money is a real tragedy 
  • When you work together on your finances, you can compound the results. If you don’t, you compound the mistakes you’ll invariably make 

Step 2 – Determine the True Purpose of Money in Your Life 

  • Your values should determine every life decision you make
  • You can’t plan where you want to go until you know where you’re starting from
  • Be → Do → Have
  • List your top 5 values
    • Does your financial behavior match your values? 
    • Any spending on things not related to your top values will not fulfill you and the joy upon purchase will eventually fade
  • When listing values:
    • Answer – “What is really important to you?” 
    • Travel → underlying value is fun, excitement, personal growth
    • $1 million → underlying value is security or freedom
  • Match 5 “do” ideas for each 5 values (actions to take to align living and values)
    • For example, security and family are two of values → set up a will / living trust, plan more family vacations, etc. 
  • Match 5 “have” ideas (specific material goals that living according to values would allow you to achieve)
    • Value = security → Do = save 30% of my income → Have = $1 million invested before age 45
  • Common Values
    • Security
    • Freedom
    • Fun / Excitement
    • Power
    • Family
    • Friends
    • Making A Difference
    • Spirituality
    • Independence
    • Growth
    • Adventure
    • Balance
    • Love
    • Health
  • Common Goals
    • Retire with $1 million
    • Pay off mortgage
    • Travel / Ski With Friends
    • Be The Boss
    • Spend More Time With The Kids
    • Annual “Guys”/”Girls” Trips
    • Donate To Charity
    • Go To Church/Temple
    • Stop Working
    • Go Back To School
    • Plan Life Better
    • Have A Great Marriage
    • Lose Weight
  • Many of us can be with our partners for years and not know their deeply held values 
  • Values are not New Year’s resolutions; people don’t lose their motivation or get bored with their values – they almost never leave you

Step 3 – Plan Together = Win Together 

  • Failing to plan together = planning to fail together 
  • Three Fundamental Truths:
  1. You can’t plan your finances if you don’t know where you’re starting from
  2. You can’t plan your finances if you don’t know where you want to end up
  3. In order to stay on track, you have to monitor progress
The FinishRich file folder system
  • Have a separate file folder for each:
  1. Tax Returns
    1. W-2’s, 1099’s, etc. and a copy of all tax returns for at least 7 years
  2. Retirement Accounts
    1. monthly retirement account statements
  3. Social Security
    1. social security benefits statement (you can find @ ssa.gov)
  4. Investment Accounts
    1. monthly brokerage account statements
  5. Savings and Checking Accounts
    1. monthly bank statements
  6. Household Accounts
    1. sub-separated into house title, home improvement (expenses are added to cost basis upon selling), and home mortgage statements (if you rent = copy of lease, receipt for deposit, and receipts for payments)
  7. Credit Card Debt
    1. monthly statements for at least 7 years, sub-separated by each card
  8. Other Liabilities
    1. all debts besides mortgage and credit card – like student loans, car loans, personal loans, etc. – subcategorized by each debt, keep the loan note and payment records
  9. Insurance
    1. subcategorized by each of your policy including health, life, car, homeowners, renters, disability, long-term care, etc. – keep the policy and all payment records
  10. Family Will or Trust
    1. keep most recent will/trust and the attorney’s information who set it up
  11. Children Accounts
    1. all records relating to 529 plans or other accounts for them
  12.  Real Estate and Other Investments
    1. if you own rental properties or other investments
  13.  Finishrich Inventory Planner
    1. overall snapshot of your financial position and holdings (a specific template sheet created by the author)
  • What’s the best way to start if you and your partner have never worked on your finances together?
    • Set up a money date (see step 9)
    • Don’t be too aggressive: offer honey, and not vinegar
    • Realize the importance of diplomacy
  • The average American spends over 10 hours a day on screen time; in less than two hours you can get all your financial information organized
Now that you’re organized financially, it’s time to get started on your goals:

Rule No. 1 – make sure your goals are based on your values

Rule No. 2 – make sure your goals are specific, detailed, and have a clear finish line

Rule No. 3 – put your top five goals in writing

Rule No. 4 – start taking action towards your goals within 48 hours

Rule No. 5 – enlist help

Rule No. 6 – get a rough idea of how much money it will cost to achieve your goals

Rule No. 7 – make sure your goals match your values as a couple

Step 4 – The Couples’ Latte Factor 

  • Problem = spending, not income
  • An extra $5-$10 a day can make you a millionaire in retirement 
  • Most people think they can’t save $10 a day 
    • Write what you spend during the day and you’ll likely find you can easily save $10 between coffee, buying lunch, parking fees, etc.
  • In America, it seems not a big deal and we need it, but do we really need it? 

7-day Financial Challenge:

  • Write down everything you spend for one week – don’t change your spending habits
  • Review to see if there’s anything you could cut out or go with a cheaper alternative

“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it”

Albert Einstein
Compound Interest
Compound Interest
Compound Interest

Step 5  – Your Retirement Basket

Don’t put all your eggs in one basket – there are three baskets which David Bach recommends:

  1. Retirement Basket (safeguards your future)
  2. Security Basket (protects against the unexpected)
  3. Dream Basket (fill desires that make life worthwhile)
  • Pay Yourself First 
    • Put aside a set percentage of every dollar you earn and invest it for your future; don’t just save whatever is leftover
  • How much? → absolute minimum of 10%
  • By paying yourself first into a retirement basket, you pay less taxes upfront + money grows tax-deferred
    • You can save $5000 without giving yourself a $5000 pay cut
    • $50,000 salary x 35% tax = $32,500
    • $50,000 salary – $5,000 IRA savings = $45,000 x 35% = $29,250
    • You saved $5,000 while only changing spendable income by $3,250
    • $3,250 / 2 people = $1,625 a year / 12 months = $135 a month / 30 days = $4.51 a day, easily doable
  • The author goes on to explain the very basics of different retirement accounts, like 401(k)s, IRAs, Roth IRAs and what to invest in once you open your account + the huge tax benefits
  • Do not allow people to talk you out of saving or convince you to do exactly whatever investments they do. Do your own research

Rules of Retirement Investing:

Rule No. 1 – Know what your money is doing

Rule No. 2 – Invest for growth

Rule No. 3 – Maximize return while minimizing risk

Step 6  – Your Security Basket

The reality is that life is messy and things always go wrong 

Hope for the best, but prepare for the worst 

Safeguard No. 1 – cushion of cash 

  • Minimum three months of expenses
  • Ask – how much money do we have to have saved for emergencies to be able to sleep well at night? 
  • Anything over 24 months is overkill and starts to hurt you

Safeguard No. 2 – write a will / set up a living trust 

  • Not debatable or couple specific — EXTREMELY IMPORTANT

Safeguard No. 3 – buy the best health coverage the two of you can afford 

  • The author explains different types of insurance plans 

Safeguard No. 4 – protect those who depend on you with life insurance 

  • The average age of widowhood is now 57 and 75% of married women will ultimately be widowed 
  • Base coverage on: Who relies on your income right now? What does it cost those who depend on you to live for a year? Are there any major debts that will need to be paid off or unexpected expenses that might occur?
  • The author describes different types of life insurance like term, whole-life, etc. 

Safeguard No. 5 – protect yourself and your income with disability insurance 

  • 1/10 people will have a severe disability
  • Questions to ask:
    • Under what circumstances will the policy pay off? 
    • How long does it take for the coverage to kick in? 
    • How long will the policy cover me? (Ideally at least until 65)

Safeguard No. 6 – consider long-term care coverage 

  • Questions to ask:
    • What exactly does the policy cover? 
    • How much will the policy pay out in daily benefits and is it adjusted for inflation? 
    • At what points do they kick in and how long will they last? 

Step 7 – Your Dream Basket 

  • Don’t fall into the “I don’t have a dream” trap – make your life worthwhile and enjoyable
  • Short Term (dreams under 2 years)
    • Money Market Account (you need it soon)
  • Mid Term (dreams 2 to 4 years)
    • Short-Term Bonds, Funds, or Balance Funds
  • Long Term (dreams 4 to 10+ years)
    • Growth-oriented Investments 
    • S&P500 Index Funds / Total Stock Market Funds (look at Vanguard)

Step 8 – Avoid the 10 Biggest Financial Mistakes Couples Make 

Mistake No. 1 – Having a 30 year mortgage

  • It is not bad to have a 30 year mortgage but understand the interest effect and pay it off quickly
  • Even one extra payment a year can save tens of thousands of dollars in interest
  • Don’t be fooled that tax-writeoff benefits outweigh what you are paying

Mistake No. 2 –  Not taking credit card debt seriously  

Mistake No. 3 –  Trying to time the market 

Timing the Market
Even missing just 10 days out of a 20-year time frame can cut your wealth in half

Check out this timing the market quiz based on historical performance

Mistake No. 4 –  Buying stocks on margin 

Mistake No. 5 –  Not starting a college savings plan soon enough  

  • Bach describes college savings methods such as 529 plans

Mistake No. 6 –  Not teaching your kids about money 

Mistake No. 7 –  Neglecting to sign a prenuptial agreement 

  • This is a touchy subject, but doesn’t mean it should be ignored

Mistake No. 8 –  Not having a greater purpose beyond the two of you 

Mistake No. 9 –  Not figuring out who is responsible for what 

  • General guidelines:
    • Each partner needs his / her own money 
    • Each partnership should have an “our” money account 
    • Define who is responsible for paying which bills 
    • There are no hard and fast rules, whatever works for you as a couple is good 

Mistake No. 10 – Not getting professional financial advice 

  • Bach describes how to find an advisor, the value of an advisor, and stuff you should know beforehand like commission-based or fee-based payments

Step 9 – Plan a Money Date 

“Couples that plan together win together” 

David Bach
  • A Money Date is a designated time during which the two of you agree to discuss your financial life and work on it
  • A Money Date does not have to be stressful; it should be fun to evaluate your position in relation to your goals and see how close you are to your dreams
  • On your first date, clean out the money files. Think of it like cleaning out the garage, it’s one of the chores easy to put off but you feel great after you get it done

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