Million-Dollar Life: Unlocking Wealth Journey

Ever wondered if living a rich life is the same as being a millionaire? Do millionaires truly lead rich lives? It might sound like two peas in a pod, but let’s dive into David Bach’s “The Latte Factor.” He unravels the magic behind realizing you’re richer than you think and how to make your hard-earned cash work for you, rather than the other way around. Complicated? Fear not! We’ll take it one step at a time.

Remember back when you were a kid? You had no idea that your toys, teddy bears, and hobbies came with a price tag. Standing in the toy store with your mom, you pointed at everything you wanted, and if you were lucky, you’d get to choose just one new cuddly buddy. You’d skip home, overjoyed, only to find out at school that your best buddy also got a new teddy. Bummer. Suddenly, your teddy didn’t seem so special anymore, and once back home, you’d ask for a new one again. Your parents probably told you that money doesn’t grow on trees and you can’t have a new teddy every day. “When you’re all grown up, you can buy your own teddies with your hard-earned money,” your mom would say.

So, as a child, you learned that you could buy stuff with money, money you’d have to earn with a job. The more you earn, the more stuff you can buy. You learned that when your paycheck rolls in, you can spend it on yourself. But do you really spend your hard-earned cash on yourself, or do you give it away to stores and businesses? Usually, when that paycheck arrives, it goes straight to pay all your fixed expenses. Rent or mortgage, insurance, travel expenses, Netflix subscription, credit card bills…

But what if, in that list, your name came first? What if you put yourself at the top of the list even before rent or mortgage? What if you were the most important item on that list? Wait a minute. Aren’t you the most important? Of course! But that’s not how we’ve been taught. We’ve been taught to pay everyone else before ourselves, putting ourselves at the end of the line every month instead of at the beginning.

Putting Yourself First

Have you ever thought about how a virus spreads? You probably have, especially after the arrival of Corona. We went into lockdown for weeks, avoided contact with others, and did everything we could to protect ourselves from getting infected. You understood how rapidly a virus could spread. If Johnny from the corner had seen ten people that week, who, in turn, had seen ten more people, you’d indirectly be in contact with 111 people by encountering Johnny. That’s a much higher risk of infection compared to seeing just one person.

Now, apply this knowledge to your finances. Every day, when you spend money on that delightful latte from the corner cafe, those bucks go to the cafe owner, not to yourself. But what if you invested that same 5 bucks at a 10% interest rate? In a year, you’d have €1,885. After 2 years, €3,967, and after 10 years, €30,727. In 40 years, it would be €948,611. That’s almost a million euros, all from those lattes! It’s not as simple as stashing away €73,000 by saving €5 every day for 40 years, which is what most of us tend to think.

The Magic of Compound Interest

How does this math work, you ask? Well, this magical equation revolves around ‘compound interest,’ where interest builds upon interest, year after year for four decades. Maybe you buy a pack of gum for a euro every day. But did you know that even one euro, with the same 10% interest rate, would grow into €5,519,732 in 50 years? That’s over half a million!

You Are Richer Than You Think

This all sounds fantastic, so why aren’t we all doing this? Mainly because we claim not to have any money ‘leftover.’ And if you genuinely prioritize everyone else over yourself when paying bills, that’s often true. We tend to think that the more we earn, the more we can set aside. But the reality is, the more we make, the more we spend. That’s because you always reward yourself last. When you’re last in line, it makes you anxious and you start feeling like there won’t be enough to spend. You sense scarcity, and that’s not a pleasant feeling. To compensate, you start spending to prove you’re not living in scarcity. You dine at fancier restaurants, buy more clothes, and take on a larger mortgage. All to reassure yourself that you’re not lacking.

Sure, nice clothes and a bigger house are enjoyable, and I’m not saying you shouldn’t indulge. I’m simply offering an insight into what we’ve been taught and how things can be different. In fact, if you adjust your money mindset and start paying yourself first, you can end up owning that million and those fancy clothes and house.

So, imagine you honestly evaluate your expenses. Isn’t there room to cut out a coffee, an extra dinner, a lunch out, or a soda? Exactly! That one coffee, your ‘Latte Factor,’ is enough to get started.

Automate It

Before you rush off to create a strict budget and cut down your daily expenses, let’s look at a better approach. Budgeting often focuses on reducing, which makes us feel deprived. Sooner or later, you’ll convince yourself you deserve that daily latte all over again, and you’re back to square one.

So, how can you make this work? Just like your rent, electricity, insurance, and other bills get automatically deducted from your account each month, you can automate payments to yourself. Using your bank’s app, you can create a ‘savings jar’ and assign 20% of your income to a separate savings account before your rent payment even goes out. Banks might not offer a 10% interest rate, but there are other solutions for that. For now, the key is to take that first step and automate a percentage of your income before anything else. Once this is set up, the rest of your expenses can come from your account. If there’s room for a latte afterward, go for it! After all, what’s not in your pocket can’t be spent.

The Bigger Picture

If this has sparked your interest, the odds are still against you sticking to it. I’m not being negative; I believe in your determination. However, without a ‘bigger picture,’ we tend to forget ‘The Why.’ Without understanding ‘why,’ the daily sacrifices might not seem worthwhile compared to the love you feel for financial freedom. So, you need a reason to start paying yourself first. Ask yourself, ‘What gives my life meaning?’ ‘What truly matters to me?’ To help you with this, I’ve included an exercise below.

Grab a pen and paper and draw your own gravestone. Sounds odd, right? But go ahead and do it. Write your name on the stone, add your birth and death dates. Imagine standing in front of your own gravestone, needing to describe your life’s journey from birth to death. What would that look like? It might be a challenging exercise, but have you ever thought about the following:

“If you don’t know where you’re going, you might not like where you end up.”

So, take your time and ponder what gives your life meaning. Those things you’re willing to ‘sacrifice’ for, like giving up that daily expensive coffee. The things that make your life meaningful are much more significant and grander than that one cup of joe. And, as I mentioned earlier, you’ll probably be able to afford them all in the long run. Just remember, no matter what, always pay yourself first.

So, are you ready to embark on this wealth-building adventure? Let’s make your money work for you, and turn your dream of a million-dollar life into reality!