Do you ever worry that your children or grandchildren will blow their inheritance you’ve worked decades to build up? Are you a recent college grad looking for advice on building a solid financial foundation? Or are you mid-career and recognizing the need to step up your savings game? If you answered yes to any of these questions, then this list of books about money might be of interest. My comments are in parentheses below, followed by snippets from each book.
The Millionaire Next Door – (My all-time favorite book about money and building wealth. Even though this was first published 20 years ago, and some of the dollar figures seem quaint, the lessons and practices still apply.) Wealth is not the same as income. Wealth is what you accumulate, not what you spend. Wealth and hyperconsumption don’t go hand in hand as advertisers would have you believe. More often than not, wealth comes from hard work, perseverance, planning, and self-discipline. Over 80% of millionaires are self-made. For the vast majority, the journey to wealth is more satisfying than the destination. They live below their means, save at least 15% of their annual income, and live frugally. At least half of millionaires don’t live in upscale neighborhoods. They rank financial independence above having a high social status.
The Behavior Gap – (Have you heard of the Sketch Guy? You’ve probably seen his Sharpie graphs depicting financial situations. Carl Richards is his name. His books are great, too.) Limit your attention to things that meet two criteria–they matter to you and you can influence them. Develop a checklist of questions to ask yourself before making major financial decisions. Are you acting out of fear or greed, reacting to the media, doing this because others are, etc? The ability to build and protect wealth is often inversely related to knowing what’s going on in the market. If you’re like most people, you will find that the pain of loss outweighs the pleasure of gain. Our natural reaction is to sell after bad news (when the market is already down) and buy when the news is good (after the market is already up), thus indulging our fear and our greed. Planning for your financial future means dealing with the constant tension between living for today and saving for some future event. In the end, our own behavior is all that we can control.
Your Money or Your Life – (In a lot of ways, this book flies in the face of the American way of shop-til-you-drop and the pursuit of material goods. It might not appeal to you, but it does cause you to think.) Money is something we choose to trade our life energy for, but money isn’t buying us the happiness we seek. Fulfillment in life comes through purpose. Fulfillment in life lies not in our jobs but in the whole picture of our lives. Differentiate between needs and wants, between enough and clutter. Live below your means. Debt ties us to our jobs. How would you spend the next year of your life if you knew it was your last? Do it yourself. Get it for less. Buy it used. Take care of what you have. Be present.
Rich Dad Poor Dad – (This can be summed up as some people have a paycheck mentality and others have a net worth mentality. The latter is the way to build wealth.) The rich acquire assets, while the poor and middle class acquire liabilities that they think are assets. Most people work for everyone but themselves. They work first for the owners of the company, then for the government through taxes, and finally for the bank who owns their mortgage. Rich people tend to buy assets first and luxuries last. The poor and middle class tend to buy luxuries first and never get around to buying very many assets. Money isn’t taught at school, so it must be taught at home. It’s not how much money you make, it’s how much you keep. Every dollar we get in our hands we have the choice of what to do with it. Our spending habits reflect who we are and who we’re going to be.
The Automatic Millionaire – (Automate, automate, automate. Don’t let your spending get in the way of your saving. Out of sight, out of mind.) Pay yourself first and set it up so it’s automatic on a regular basis. Get your money to work for you. If you save $5 a day for 42 years and get a 10% return, you will have saved $1.2 million. Put aside the first 10-15% of your gross income, preferably in a 401(k) or other employer retirement plan. When it comes to debt if you have to use it, pay it off quickly. (This book was written when interest rates were higher than today, I will point out.) One way to use a 30-year mortgage to your advantage is to use a bi-weekly payment plan where you pay half of your mortgage payment every two weeks. This will allow you to pay off your mortgage 5-7 years earlier. Take an active role in your financial life and with your money, not a passive one.
There you have it. Five books about money and personal finance that are well worth the read. If you only have time for a couple, I would suggest the first two. And if I’ve left off a book or two that you think deserves to be on this list, send me an email jon@pittand.com.
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