Monday, February 16, 2009

Book 6 - Secrets of "The Wealthy Barber"

Finished book 6 of my 2009 book reading challenge.

If you don't know it yet, my goal behind this challenge was to finish the year with some new expertise and knowledge I can use to improve my life and the lives of my family and friends. This is why I've focused my reading primarily on nonfiction topics such as personal development and finance. With that in mind, my friend's recommendation of "The Wealthy Barber" fit right in. For those of you recommending fiction and classics, I will read some of those too, so please keep the suggestions coming.

So...what did I learn from this read? Surprisingly a lot.
I'll admit I've heard all these suggestions before but reading them in an entertaining, narrative style just brought them home that much more. For those of you saying, "dude, what the hell are you talking about? Get to the point!" haha...thanks for your patience.

Here are the highlights:
  • The Ten-Percent Solution: “Wealth beyond your wildest dreams is possible if you follow the golden rule: Invest ten percent of all you make for long-term growth.” This is huge my friends, so don't blow it off. It's been touted by dozens of personal finance books because it's true. We all suck at saving money and investing it. So best to make it automatic (as Bach suggested in the Automatic Millionaire) and have your HR person set up a direct deposit of 10% of your income into an investment account. Something safe and simple like a balanced mutual fund yielding 8-15%. Do this today. You won't even miss it and it'll make you rich.
  • Wills, Life Insurance, and Responsibility: Find a lawyer and get a simple will drafted for a couple hundred dollars. Don't let the govt tie up your assets and tax the crap out of your estate. Also, basic term life insurance is a must. It's cheap and will replace your income for your loved ones if you handle it right. Ultimately, your goal is to gather enough wealth so you're self-insured, but until then, put this in place.
  • Planning for Retirement: Social Security will be minimal and won't support you. Get a tax-deferred IRA going. Take advantage of employee matching asap. today, today, today, because every day counts with compound interest. This will be tied up til retirement so it's separate from your 10% in step one.
  • Home, Sweet Home: Save a down payment and buy an affordable home as soon as you can. It's the best forced-savings investment out there. But until you save the down, rent. Nothing wrong with renting if you invest what you would have spent on a house, either.
  • Savving Savvy: Here’s a surprise: Chilton believes budgets are optional. He stresses saving through frugality. “A two-dollar raise [in wages] often translates into only a one-dollar increase in disposable income, the same increase that would result from saving a single dollar.” If you can save $200 when buying a computer, the net effect is the same as receiving a $400 bonus in pay.
  • Insights into Investment and Income Tax: The book’s discussion of taxes is run-of-the-mill, though I do love his advice about spending a windfall: “There’s simply no better alternative for the average American than to pay off his or her non-tax-deductible debt.” If you get a windfall, pay off your credit cards!
  • Graduation: Chilton believes a six-month emergency fund is excessive. He recommends keeping about $3,000 set aside. He also spends some time discussing college savings. And he mentions something worth noting that I've heard from Dave Ramsey and others - “Your biggest asset, by far, is your earning power.”
All in all the simple steps outlined in this book are a sure fire way to make wealth and security almost automatic. At the least, direct deposit 10% into long term investments and invest in a retirement account. Insurance, paying off debt, and being frugal play a big part too, but all of these buck human nature (bad habits) so just do the best you can.

Ok, next on my list is a book my dad suggested I read. I asked him what biographies I might consider reading and without missing a beat he said "The Biography of Malcolm X is a good place to start." So, in honor of black history month I'm gonna try tackling this 500+ page monster and see what it has to offer.

Wish me luck!!

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