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David Bach Talks Savings, Millennials, His Own Money Mistakes

David Bach Talks Savings, Millennials, His Own Money Mistakes

David Bach was not an ordinary kid. At the age of seven, under the guidance of his grandmother (a self-made millionaire in her own right), David bought his first stock in McDonald's—because what seven-year-old wouldn’t want to own a McNugget?

Today, David is one of the most well-known financial experts of our time. With nine consecutive New York Times best selling books, various seminars and countless media appearances, David has educated tens of millions of people on how to be smarter with their finances and start living the life they want to live. 

We’re thrilled to announce that David has joined Clarity Money as an advisor, helping to guide our mission forward and support our users in their journey to take control of their financial lives.

I believe Clarity Money has the power to help millions of people. Getting this powerful tool in the hands of more people, to me, is a crusade.

Clarity Money caught up with David to talk all things finance, and to tell us more about his crusade to empower Americans to save more money, invest in their futures, and ultimately make their dreams come true.

This conversation was edited and condensed for clarity.

Clarity Money: You've been at this for a while. Knowing what you know now, what kind of advice would you give your younger self?

David Bach: Well, I’m 50 right now, and I’ve been doing this since my early 20’s. I’ve been teaching the miracle of compound interest for over 30 years. When you’re young, you see the charts and statistics about how if you save $5, $10, $20 a day, that can add up to a million, which is hard to believe. But I’m now 50 and it’s happened.

I always tell people that the most important thing to do is paying yourself first and buying a home because you can’t get rich being a renter!

CM: Biggest money mistake you've made in your life?

DB: The only thing I regret about money are the things I’ve sold. I’ve been in the business for close to three decades, and one particular money mistake I keep with me is not holding onto my Amazon stock. I’ve been a user of Amazon since the beginning, before the dotcom crash. And I always think that if I had just held on and continued to buy Amazon or just held onto my stock, I’d have $10 million by now.

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CM: Arguably, money is that one thing everyone has some level of experience with. If you have a lot or a little, we all deal with the complexity of managing it. Money can incentivize us, in that classical economic sense. But it also holds so much power over our feeling of self-worth and value. What is it about money or ourselves that makes financial planning so difficult? And why is it such a difficult topic for people to open up about to each other?

DB: The reason financial planning is so difficult is because it’s not taught in school. We don’t teach financial literacy in school and if we do, it’s definitely not part of the core curriculum testing. Then, once you turn 17 or 18, you begin to make financial decisions, such as taking out loans for college or for a new car. And you realize that these actions have ramifications that, for the most part, young people aren’t equipped to handle.

The reason people don’t open up about money is that it’s sort-of one of the last taboo topics that’s out there. We’ve been brought up to believe that it’s not polite to talk about money. But what’s happened is that we’ve created a consumer society that revolves around money and how you look. Social media has made this worse in a sense because when people post pictures of their new cars or lavish vacations, it’s easy to feel that you aren’t enough. And a big part of that comes down to money.

Attempt to save one hour a day in your 401k plan. From there the individual would likely go through all the reasons they can’t, and I’ll persuade them why they can.

But in the same breath, millennials are transforming the way we are talking about money. They are living a more balanced lifestyle and have the technology to help them make better financial decisions, which in turn allows them to have a more open dialogue around their finances.

CM: At this point, you've popularized some sage pieces of financial planning advice. There's the “latte factor,” “pay yourself first,” and your general hatred of budgets. To me, these things resonate because they seductively simplify what feels so daunting. In a lot of ways, that's exactly the approach we've taken in building our Clarity Money app. Why do you think your message and approach has resonated so much with so many?

DB: My gift in life is being able to take complex topics and simplify them for the masses. I don’t think I’m here to be an educator, but rather an activator who provides people with the tools to take action of their finances. Over the years, I’ve provided people with honest, ethical and timeless advice. I’m not a fad guy and one of the only things I have had to update in my books are the tax laws, investment companies, and the like.

The great truth about timeless advice is it’s timeless for a reason. It works throughout time.

CM: OK, let's talk brass tacks. I'm going to give you three different scenarios and I'd love for you to tell me the first piece of advice that comes to mind you'd offer to each:

A 23-year-old recent college graduate. He's got $80,000 in student loans and is working in his first real job making $60,000 a year. He's thinking of going to grad school in a few years, but he's not sure. He has no real savings or investments at this point. But he's super anxious because everyone keeps telling him to start early, and he doesn't really feel like he can.

DB: The first thing that I’d look at is if this person was working at a company and if that company offered a 401k plan. You need to pay yourself first and you can worry about loans later. Attempt to save one hour a day in your 401k plan. From there the individual would likely go through all the reasons they can’t, and I’ll persuade them why they can.

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The easiest time to pay yourself first is in your 20’s. Typically you aren’t married, you don’t have kids or mortgage payments. I’d show them the numbers and what it looks like when you save a certain amount over a period of time. From there, I’d show them the differences in starting at 30 versus, say, 23, and that right there is likely close to a million dollars difference in retirement. The miracle of compound interest is that when you start early, it’s a game-changer.

Not to forget about the loan! I’d then take a look at their loan and see what their rate is. As long as it’s low and not about to spike upwards, it’s okay to have student loan debt. But I would recommend accelerating their payments.

CM: 30-years-old, recently engaged. She's at that point in her life when she's got a lot of big decisions ahead of her all coming at once. The biggest on her mind? Buying a home versus continuing to rent. She makes about $90K a year, has about $30K in student loans, her 401K is around $40K, and she's got about $20K in emergency savings.     

DB: She’s doing phenomenally! I don’t know what her fiance’s situation is, but I’m a believer in young couples becoming homeowners. On average, homeowners are 40 times more wealthy than renters in America, and the biggest mistake millennials are making is putting off buying a home. If she knows that she isn’t moving within a year I’d tell her to buy a home; otherwise, they should rent until they know they’re staying put.

CM: A 36-year-old with two kids (under the age of 10). She makes $125K a year and all of her savings add up to over $150K. Her partner makes $115K, but she doesn't really know much else about his spending or saving habits. They like to keep their finances separate. All she cares about is whether they can jointly save about 15 or 20% of their combined income every month, but she really wonders if he's truly committed to that idea.   

DB: If this person was in front of me, I’d say it’s really simple - either your partner is paying himself first in his 401k plan or he’s not. The beauty of saving money automatically is that there’s no commitment.

If he gets paid every two weeks, and there’s money going out of his paycheck into his 401k plan, then he’s committed. If not, then he isn’t. I’d also ask if the two of them were putting money into an emergency savings account. If not, then it’s not commitment.

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Money is black and white. My book, "Smart Couples Finish Rich," is really designed for this—to get couples on the same page when it comes to finance. Agree on some basic financial rules.        

CM: So much of our approach to financial planning in the Clarity Money app is really reflective of a lot of what you've been preaching for years. Tell us why this partnership is so meaningful to you and your readers?

DB: I believe Clarity Money has the power to help millions of people. Getting this powerful tool in the hands of more people, to me, is a crusade. It’s a crusade because when more people have access to this tool, they’ll save money, pay themselves first automatically, find their “latte” or “double latte” factor in minutes and increase their savings account.

By endorsing Clarity Money, I’m helping provide a solution to what is a basic financial problem. That problem is seeing where the money is going, understanding how to keep it and how to grow it, and Clarity Money is a tool that will help millions do that just that.

CM: Describe what you thought when you opened it up and played with it for the first time.

DB: The thing that blew me away, besides the simplicity, was seeing your “double latte factor” in black and white. I ran one credit card through to test it out, and seeing all the things I signed up for in one area, even for me was a real eye-opener. It’s a good reminder of all the things I signed up for that I vowed to cancel, which Clarity then gave me the ability to do so directly through the app.

I always tell people that the most important thing to do is paying yourself first and buying a home because you can’t get rich being a renter!

And what will come from that feature is more consumers becoming aware of their spending habits to find the areas where they need to start saving. Other apps show you where the money is going, but Clarity Money simplifies it, shows you where you’re spending, and it doesn’t clutter your feed with annoying ads.

CM: Finally, it's one of those questions you've asked others as a financial advisor. So, I'll ask you. What does your retirement look like to you?

DB: For me it’s not all about the money. I toyed with the idea of retiring at 46 and even took an 18-month sabbatical where I didn’t work. I’m financially in a great place, and what financial security has done for me is allow me to work on the things I care about. I would say I’m not working on a specific date to retire but more toward being financially free. So when the day comes that I want to retire, I can do the activities I’m passionate about, which include skiing and being with my family and friends.

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