[This is Part 2 of my review. If you haven't yet, you should read Part 1 first.]
The Latte Factor® is not the only registered trademark from previous books that David Bach revisits. Also making a prominent appearance in Start Over, Finish Rich is the DOLP® debt reduction system.
DOLP®, Bach tells us, stands for dead on last payment. What on Earth that means he does not disclose. (Not in this particular volume anyway.) In practical terms DOLP® is a method of deciding which of your debts to pay off first.
In what order you should pay off your debts is a surprisingly controversial topic in the personal finance world. The two leading theories are the Debt Snowball, as advocated by Dave Ramsey, in which you pay the smallest debts first, and the Right Way, as advocated by rational people, in which you pay the highest interest rate debts first.
DOLP® is, somewhat remarkably, a third method. You divide the outstanding balance on each of your debts by its minimum monthly payment. You then pay off the loan that has the lowest ratio of minimum payment to balance first.
Why? Bach doesn’t say. He claims "the DOLP® system works by identifying the card you can pay off most quickly…." But, assuming that that was your goal, isn’t the card you can pay off most quickly simply the one with the lowest balance? That is, wouldn’t the Debt Snowball be the way to go?
Alternatively, if you assume that minimum payments as a ratio to the outstanding balance are proportionate to the interest rate, which is very roughly true, then DOLP® amounts to paying the highest interest rate first. Approximately. But if this is what Bach wants the reader to do, why not just say so? Does Bach think that sorting by interest rate is too complicated?
Or perhaps he thinks it is not complicated enough. After explaining the mechanics of DOLP®, which includes a worksheet you can download from the web, Bach triumphantly declares "now you have a system to free you from credit card debt." It is clearly important that he is giving the reader not merely advice but a system, a finely engineered machine that will take care of the reader’s problems.
Just beneath the surface of the advice of all the personal finance gurus is a concern with the psychology of the audience. Bach, refreshingly, is relatively candid about this. He actually comes out and says that his principal challenge is not getting people to believe that his advice is valid but that they can actually pull it off.
So a great deal of what Bach tells his readers to do is less focused on making them rich than on giving them the feeling that things are under control and that they are on their way to being rich. The main benefit of DOLP® is not really paying off debt in a mysteriously optimal order, but the feeling of reassuring control the reader will get when he makes a table of his debts and applies a "system" to them.
A surprisingly large portion of Start Over, Finish Rich discusses simple bookkeeping and the tidy organization of papers. There is a lengthy and detailed description of the FinishRich File Folder System, including what stationery to get, how to label the folders, and which documents to keep in them. Bach asserts that many people "waste literally hundreds and sometimes thousands of dollars a year" on interest and late fees merely because they cannot physically locate their bills. I have a hard time believing that very much of the interest and late fees paid in this country is due to mere untidiness, but I can see the therapeutic value of neatly labeled file folders for those overwhelmed by money issues.
Other than "latte", the word most closely associated with David Bach is "automatic." Central to his program, as described in Start Over, Finish Rich and all his books, is the admonition to "make it automatic." By this he means that you should set up a web of automated payments and direct deposits that will take care of your bills and see to it that you save, without any further action on your part.
Of course, making it automatic is also a tidy system that will calm fears. Like DOLP®, it is a machine that can be applied to your problems, giving you a reassuring sense of control and of forward motion towards your goals.
I object to Bach’s automation scheme for several reasons. At the margin it can cause some poor money decisions. Although he doesn’t say so, I believe that Bach’s moth-to-flame attraction to homeownership has a lot to do with its automating side effects rather than direct economic benefits. A house is a large illiquid store of wealth that is, relatively, hard to tap. And the part of the monthly mortgage payments that go to principal are forced saving.
Another objection is that automating works by creating a false sense of scarcity and by reducing the number of choices available to the consumer. The basic idea is that you should arrange to have a generous slice of your paycheck automatically salted away before you can get your irresponsible little hands on it. As a rule, I think more options in life are a good thing, even if a few of them are poor. And I have difficulty with any system that relies on my treating myself as if I were two people, a wise one with foresight and a foolish one who can be tricked by the wise one.
But what makes me most uncomfortable with automation, and with Bach’s entire program of tidy schemes, is the message that it sends. Ultimately, Bach is not saying that you are able to control your finances. He is saying that you can only do so with the assistance of elaborate artificial means. You lack the willpower, or are perhaps just too stupid, to pay off your credit cards without a scorecard and a special method. And you certainly cannot expect to be able to save if given the option to spend, so don’t even try.
I am not naive enough to believe that there are not millions of Americans for whom this description fits. But the vast majority are at least capable of operating without elaborate tricks. Bach does not think so, telling us that in his years of doing this he has only ever met one guy who could follow a financial plan "manually." That’s a terrible message to send.