Just to mix it up a little, I thought that today I would write about something I liked and would recommend to others. Over the weekend I read Michael Lewis’ latest tome, The Big Short: Inside the Doomsday Machine. It’s not bad. Good even.
The book tells the intertwined stories of a handful of investors who saw the subprime disaster coming and bet big accordingly. It is not a broad explanation of broader events. That sort of thing is not what Lewis does, and indeed the book’s prologue and epilogue, in which he tries gamely to put his yarn in a larger context, are the weakest portions of the book and might be skipped by the reader in a hurry.
But what Lewis does well, and in this case masterfully, is tell an interesting and entertaining microcosmic story that has wider implications and lessons. If the as yet unwritten full history of the Great Recession could be thought of as a large mural, The Big Short would be an exquisitely rendered corner of that larger, unfinished, painting. It does not actually cover much surface area, but it helps a viewer imagine what the whole work might someday look like.
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[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?
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About a year ago I reviewed Suze Orman’s 2009 Action Plan. I felt certain that it would be the first in a series of annual paperbacks from Ms. Fabulous. Sadly and inexplicably, she seems to have passed on this particular opportunity.
But all is not lost. David Bach, of Latte Factor® fame, has stepped into the breach with Start Over, Finish Rich: 10 Steps to Get You Back on Track in 2010. It works well as a sequel to Orman’s book. Aside from the similar title it shares the same peculiar 4 x 7 1/2 paperback format and a cover laden with gold leaf. (Of course, by law, all personal finance books have some gold leaf on the cover. But this one has an Orman amount.) And Bach cribbed Orman’s gimmick of giving away electronic copies of the book for a limited time to build sales momentum.
But while Orman’s 2009 book had the tone, if not the substance, of a collection of emergency maneuvers to help the reader deal with a calamity, Bach’s 2010 book is more of a pep talk to get the reader back on track now that the calamity is over. Indeed, it is endearingly old school. The goal is to get rich, not merely avoid becoming poor. And Bach generally resists what must have been a strong temptation to make his book seem more timely by claiming that his advice is specially tailored for times like these.
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Every day it becomes increasingly clear that the Great Recession marks the beginning of a a New World Economic Order. And with the new comes an end of many parts of the old. Some will not be missed. (E.g. no-doc mortgages, investment banks, Circuit City.) Others will be missed by the nostalgically inclined. (Newspapers that actually print on paper, the Big Three Automakers, movie theatres.)
And last week Free Money Finance brought sad news of another part of our culture that is disappearing. Maybe The Latte Factor is Now Less of a Factor? Apparently, caffeine vendors from Starbuck to McDonald’s are now cutting prices, meaning that doing without your morning fix just isn’t the compelling savings it once was.
Not that it was really ever that compelling. Indeed, I am saddened by the news because The Latte Factor® is such an excellent example of symbolic frugality that I will miss it. Realizing that this may be my last chance to take it out for a spin, here goes.
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Free Money Finance had a post yesterday asking How Much of a Role Does Luck Play in Money Success? This was in turn inspired by a Wall Street Journal blog post similarly titled What Role Does Luck Play in Getting Wealthy?
(I have trouble making heads or tails of that blog, The Wealth Report. Sometimes it sounds like serious reporting on the world of the seriously loaded, e.g. Switzerland Ranks No. 1 as Home for the Rich, and sometimes sounds like The Colbert Report’s Colbert Platinum segment. e.g. Oprah: It’s Great to Have a Private Jet. Alas, I digress.)
The degree to which financial success is correlated with talent and hard work, which is to say the degree to which money is distributed justly in our society, is a fundamental question of great importance that I don’t have the energy to tackle today.
What I do want to consider is a smaller and related question: are rich people necessarily good at personal finance? It’s a basic premise of a large segment of the personal finance literature from The Millionaire Next Door to Secrets of the Millionaire Mind through Kiyosaki’s Rich Dad series.
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