How can you practice the Latte Factor? – Part 2

Henry said, “Just think about the majority of businesses; whether it’s your cable company or the neighborhood gym, they all automatically deduct money from your account, right?” They do it for the same reason you should: it’s straightforward and effective.

Zoey was beginning to realize the truth. But then she recalled what her friend had said to her the night before: compound interest of 10% was a thing of the past. How is it possible to still obtain such large returns in the present era, she questioned Henry.

Henry provided an easy response. The stock market has increased annually by more than ten percent since accurate market data collection started in 1926. That depends on the year, of course, and the market will always experience ups and downs. However, the pattern has persisted even since the financial crisis of 2008. In actuality, the most cautious stock strategy would likely return about 8% annually.

No matter what percentage it is—5, 8, or 10, Henry reasoned—compound interest applied to a portion of your pretax income will get larger over time. Just make sure it deducts itself each month without your intervention.

Thursday morning, Zoey was introduced to one of Henry’s buddies, Baron, before departing Helena’s. Baron had turned his life around with Henry’s assistance, and he had organized his finances. Baron also revealed to a shocked Zoey that Henry was the owner of Helena’s! Every minute brought new information about this enigmatic financial genius.

Barbara approached Zoey’s desk at work that morning and inquired as to whether she had spoken with Henry. Although Zoey gave an affirmative response, she was still unsure. She was certain that she was just bad with money. In an effort to impart some of her own knowledge to Zoey, Barbara began by outlining the Three Myths of Money.

Barbara identified the first myth as the idea that increasing your income makes you richer. While the majority of people mistakenly believe that they have a problem with a lack of income, the real issue is typically one of excessive spending. The majority of the time, those who earn more money just spend more of it. The answer? to alter the spending behaviors that control the money you already have. For instance, Barbara saved about $15 every day by bringing her lunch to work.

The second misconception, according to Barbara, is the idea that one requires money to be successful. Barbara had lost track of how many individuals had said things to her along those lines. It can begin with as little as $5 each day, as Henry had stated. And you don’t have to be a Wall Street investor or a mathematician to understand how compound interest works, Barbara continued. On the contrary, the idea behind creating money is that it should take care of itself and you shouldn’t constantly worry about it.

The final money fallacy, according to Barbara, is that you can always rely on someone else when things are tough. At the end of the day, you can’t always count on getting assistance from the government or your family. Barbara said that this is particularly true for women because, when things are difficult, we frequently harbor the wish that some Prince Charming will appear out of nowhere and sweep us off our feet. However, that is only a fairy tale. Zoey had to be her own Cinderella.

Zoey discovered that she had only heard two of Henry’s three secrets on her way to work on Friday. She decided to visit Helena’s to pick Henry’s brain for more knowledge in order to learn the third and last secret.

Henry was pleased to oblige and asked Zoey what was important to her at the beginning. Not later, but at this very moment. After some introspection, Zoey revealed her desire to master the art of taking breath-taking pictures. She also had a long-term goal of traveling the world. Since she worked for a travel publication but had never traveled abroad, it often made her depressed.

Henry was pleased to comply and asked Zoey about her priorities in the beginning. Right now, not some time in the future. Zoey admitted that she would love to learn how to shoot beautiful pictures after some introspection. Additionally, she had long-term travel aspirations. She had to admit that although she worked for a travel publication, she had never traveled abroad.

Will the dream account be sufficient for her travel plans, though? She would still require adequate time off from work. The daring sabbatical idea, which involved carving out time for himself to visit more than 100 nations, was subsequently presented to her by Henry. Greece was among the first countries he visited. In fact, Henry took the original photograph of Mykonos where it all started.

Now that she had the three secrets, Zoey was aware of what she needed to accomplish. She first had a meeting with the HR representative of her travel publication to set up a 401(k). She then started two dream accounts, one for vacation and the other for her photography class.

She finally sat down with Barbara and requested permission to take an annual radical sabbatical. She could even conduct remote work while traveling. On the condition that Zoey send her a postcard, Barbara consented.

Since then, Zoey has gone on three very different sabbaticals. Additionally, the magazine where she works has begun publishing the images she has been taking all around the world. Zoey is succeeding in her goals, and it all began when she understood the true worth of a $5 latte.

We have discovered the three keys to financial freedom through this parable. Always pay yourself first, preferably into an account that is pre-tax. Next, abandon planning and automate your path to financial independence. Finally, Zoey’s tale demonstrated to us how creating dream accounts might help us live luxuriously both now and in the future. Overall, there is no justification for leading a precarious financial life; all you need to do is save $5 per day. Alternatively put, the cost of a latte.

Check out my related post: Should you have a one page financial plan?

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