
The One-Hour Money Habit
Today Alexander Jang, Decoda’s Library Technician, is sharing his summer reading pick.
During this summer, I read a 146 page book The Latte Factor by David Bach and John David Mann. In this book, David Bach teaches the lessons he learned from his grandmother about personal finances in the form of a story about a character named Zoey Daniels. Zoey lives in Brooklyn and is an Editor for One World Trade. Life is expensive for her. She is living paycheck to paycheck, pays rent and has massive credit card debts. She doesn’t know where her life is going. After a meaningful and deep conversation about life with her boss, Zoey later meets a coffee shop owner Henry Haydin, who teaches her a three-step process to financial freedom. For educational purposes, I will discuss each step in a general sense.
First Step: Pay Yourself First
The first step is to pay yourself first. After every paycheck you make, you can pay yourself first by saving the first hour of income of each workday. Say for example you work a typical full time, 9 to 5 job making $30 an hour while getting paid every 2 weeks. When your next paycheck arrives, keep $300 ($30 x 10 days worked) for yourself and either invest it or put it in a savings account. If you repeat this process, you will have $600 ($300 x 2 paychecks per month) at the end of each month and $7200 ($600 x 12 months) at the end of the year saved up. However, everyone’s financial situation is different, the amount of income saved up each day can be adjusted as long as you keep it consistent. For example, say you can only afford to save $10 each working day. The results: $10 x 10 working days = $100 saved per paycheck. $100 x 2 paychecks per month = $200 a month. $200 saved per month x 12 months a year= $2400 saved at the end of the year.
Second Step: Make Your Savings Automatic
The second step is to make your savings automatic. Instead of budgeting, you can set up a systematic savings plan with your bank. In this plan, you can choose the transfer amount, when to deposit (usually the same day your getting paid) and where the funds will be deposited. This system will run by itself in the background and takes zero discipline, zero self-control and zero willpower once it’s set up. This system can also be turned off or adjusted by talking to your bank representative so there is flexibility.
Third Step: Live Rich Now and Not Some Far-off Future
The third and final step is the most important step. Without this step, the first two steps serve no purpose and you will most likely not do them. The third step is live rich now and not some far-off future. To do this, think of your values and what would bring you the most joy. This can be short term goals and/or long term goals. Once you figure out your goals, create savings accounts in your bank and allocate a certain amount from your systematic savings plan into those accounts. Not only will you able to save for your goals but you will be able to enjoy life once you reach them.
My Personal Reflection
For me personally, this book served as a great reminder of what I did when I was younger and how I am today. From experience, the three steps to financial freedom is not the end all and be all but it does give you a good start on creating a financial future you desire. The book also touches upon life choices and not just personal finance. For example, for a good portion of the story, Zoey was pondering whether she should accept a higher paying job from another company. Although the pay was higher, Zoey in the end turned down the offer because she loved her current job and her working environment. She also got along well with her boss who trusted Zoey and valued her as a major contributor to the company. Zoey’s current work gave her a purpose and she stayed because she is valued. In addition, going to a new company would bring lots of uncertainty with her new coworkers, boss and working environment. Lastly, author David Bach, taught me to not live half your life but rather live your whole life to its fullest with no regrets and to maximize the value of what you currently have. Doing so will help you unlock your true potential.
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