I attended the David Bach seminar sponsored by Scotia Bank last night. At the outset, I should point out that I am not a big fan of David Bach. I am disciplined enough to spend less than I earn and I tend to save a significant chunk of my pay check, so pop financial experts like Mr. Bach can do very little for me. That said, since so many Canadians save so little, anyone teaching people financial responsibility should be applauded.
The seminar was well-attended. I am guessing that there were about 3000 participants and hardly a seat was empty. Mr. Bach is definitely popular. He is also charming and witty and a very good speaker. The material he presented in his seminar would be familiar to those who read his books: The Automatic Millionaire and Start Late, Finish Rich. Of course, the lessons are simple and just common-sense: spend less than you earn, cut your spending (a.k.a Latte Factor), pay yourself first etc. If you already know these principles or better yet, following them already, you can safely skip these seminars and save yourself a couple of hours.
While I liked the seminar overall and would recommend it for someone who is not financially literate, I was bothered by some of Mr. Bach’s suggestions. He started off by saying that his system “doesn’t involve budgeting or discipline because it doesn’t work”. Pardon me? Most people already know the basic financial principles. It is following these lessons that is so hard because it takes discipline. And don’t even get me started on budgeting. If you don’t budget, you don’t have a plan to save and if you don’t plan, you are setting yourself up for failure.
Mr. Bach’s asset allocation advice is also a bit quixotic. He suggests that assets should be split equally between stocks, fixed income and real estate. Perhaps, it makes sense for some people, but I do hope these people are not assuming the 10% return (used throughout the seminar) in their calculations.
I totally disagreed with Mr. Bach’s suggestions that everyone should buy a home. He quoted a study that showed the homeowners have more than 30 times the net worth of renters. So, are homeowners wealthy because they own a home or do they own a home because they are wealthy? I doubt there is a causal relationship between the two. At any rate, it is a bit irresponsible to suggest that someone in a lot of credit card debt and very little in savings (Mr. Bach’s primary audience), buy a home with nothing down, mortgage themselves to the hilt, pay a premium on prevailing interest rates and pay the maximum private mortgage insurance at a time when real estate prices are expected to soften.
The financially savvy can safely skip the seminars (and the books, for that matter). Everyone else would find the seminars (and the books) educational and definitely entertaining. If they follow some of the lessons with discipline, they would also find it profitable.
Bookmark: del.icio.us Digg StumbleUpon
5 responses so far ↓
1 Dave // Nov 18, 2005 at 3:48 pm
You will find the “don’t budget because it doesn’t work” argument in the Wealthy Barber by David Chilton as well. Although I have only skimmed Bach’s books, I think perhaps Bach is using the term “budget” to refer to forecasting all your expenses for the coming month/year and sticking to it, similar to the federal budget. Chilton calls this a budget which keeps track of “needs” and “wants.” I buy the claim that this doesn’t work.
So they recommend this pay-yourself-first method, or automatic methods, where you take out certain amounts out of your account automatically every week/month for various things. Maybe Bach doesn’t call this “budgeting.” Chilton calls this a budget which just keeps track of “needs” (ie. rrsp, insurance, mortgage, savings, rent, etc…). For anyone who hasn’t read it, see here: Wealthy Barber page 161-165) at amazon.com (see especially bottom of page 163).
I totally agree that Bach’s advice that everyone should buy a home is totally ridiculous. And quoting that survey makes it even more ridiculous! The only type of person who should probably follow that advice is the type of person who is completely incabable of saving. For them, a house is a forced savings program. Chilton’s chapter “Home, sweet home” and is not as absolute as Bach’s “everyone should buy a home” philosophy and is a good read.
2 Canadian Capitalist // Nov 19, 2005 at 4:56 pm
Good points Dave. What bothers me is David Bach’s implication that it is all oh-so-simple because there is no discipline involved. People want to hear that but I hope they don’t believe it. Saving money, of course, involves discipline.
I can buy that budgeting every minute thing is tedious and probably won’t work. At a minimum, everyone should roughly budget at least the fixed expenses (rent/mortgage, property taxes, auto & home insurance, phone, water, hydro etc.).
3 Mortgage Calculator // Nov 20, 2005 at 11:18 am
Disagreeing With David Bach
A second look at wealth building schemes based on real estate acquisition….
4 David Grant // Nov 20, 2005 at 2:40 pm
One thing I just remembered about Bach’s automatic millionaire. I remember reading the “latte factor.” I didn’t really agree with it 100%, because for a lot of people getting a latte every day brings them happiness which is important. I think of it this way: if you are putting away money every month for all the things you want to save up for, paying the bills, and are putting away enough for retirement, and you have enough money leftover every month to buy a latte every day, then nothing should stop you.
5 Canadian Capitalist » David Bach Interview // Jun 23, 2006 at 7:44 pm
[...] But soon enough, Mr. Bach was once again recommending his goofy asset allocation strategy (he suggested the same strategy in one of the ScotiaBank seminars last year): It’s called the perfect pie approach. It is one third stocks, one third real estate, and one third guaranteed investments. Whatever you have to invest, your whole portfolio, your net worth, should be divided. One third real estate. [...]
Leave a Comment