Before I “bash” on this book, let me say how much I recommend reading it. With everything you read, there are things you agree with, and others you don’t.
In a previous post, I spoke about the three main things I agreed with from the book. In this post, I want to discuss the things I don’t agree with. And why I don’t agree with them.
The Latte Factor
First on the list, a concept called the Latte Factor. What is the Latte Factor? This is a concept that talks about how all the little expenses add up, like buying lattes. The concept puts a high emphasis on eliminating the smaller expenses.
Why do I not agree with this concept? Simple, if you breakdown your actual expenses, notice how much is spent on the little things. Your largest expenses are housing, transportation and food. It is more important to cut your housing expense (30% of take home) than it is to not buy lattes in the morning! Also, don’t stop doing things that bring you happiness.
Second on the list, having a diversified portfolio. There is a little caveat to this one in particular. So let’s explore that. What does it mean to have a diversified portfolio? For me, this means having different investment vehicles because you are nervous of a downturn. From a stock market standpoint, this would look like buying many different individual stocks. Or even having a large mix of stocks and bonds to try and “steady” out the ride.
The key reason I don’t agree with this comes from the why most people have for a diversified portfolio. If your why is protecting yourself through a downturn, that is what I disagree with. The goal should be to find the investment vehicle(s) you believe in and invest. Keep it simple. Having a diversified portfolio can mean a myriad of things depending on who you ask. I am not saying you are wrong if you have a diversified portfolio. I simply don’t agree with a diversified portfolio if the why is to protect yourself from a downturn.
Paying Off the Home Early
Last, the author spoke about a concept of paying off the home early in a unique way. The author spoke about making bi-weekly mortgage payments. If you make full mortgage payments bi-weekly, you will end up making one extra mortgage payment each year.
Why I don’t agree with this? Your mortgage interest should be less than what you can make with that money elsewhere. For that reason, making an extra payment to your mortgage could be better spent invested. If you are paying 4% interest on your mortgage and you could make 7% in the market, what would you do? Personally, I would invest that money versus paying the extra mortgage each year.
- Don’t sweat the small expenses if they bring you happiness. Focus on your largest expenses, mainly housing and transportation.
- Keep your portfolio simple. Having a diversified portfolio in worry of a down market will only make things more complex.
- Instead of paying an extra mortgage payment each year, invest! Invest in something that you feel confident will make a higher return than your mortgage.