The Amateur Financier

Contest is Over, Winner is Being Selected,  Thanks to Everyone who Entered and Everyone Who Helped Promote the Contest!

Ah, there’s nothing quite as fun as reading, is there?  I know that I am a hardcore bibliophile, and enjoy reading at every opportunity that is presented to me.  I’m guessing more than a few of my readers are the same; particularly given the high percentage of you that are fellow bloggers anyway, it just seems fitting that you’d enjoy reading some more personal finance books.  So, I’m giving some away.

As I did before, I’ll be giving away ten books to one lucky reader, allowing him or her to catch up on their own personal finance reading.  I’m going to simplify the means of entry this time around: all you have to do is leave a comment to win; none of that tweeting about the contest or sharing it in your own blog stuff.  (While I hope you’re willing to pass along information about this giveaway, I can see where it could lead to conflicting feelings, wondering whether it’s better to share the info and get another entry or two or keep the information to yourself and decrease the number of competitors.)  As to what to include in your comment, I’d like you to answer this question:

What’s the Best Personal Finance Book You’ve Ever Read?

I’ve read quite a few, myself, but I’m always on the hunt for more.  As with most things in life, one of the easiest ways to learn more about what good personal books are out there is to ask my friends and acquaintances to share some of their suggestions.  If you’re willing to share one or more of your favorites, I’ll give you a chance to win some of the books that I’ve read recently, including:

• The Wealth Cure - A look at the true nature of money in our lives, provided by Hill Harper of CSI:Miami (but don’t let that dissuade you; it’s really quite good).
• Get a Financial Life - A well-written guide to personal finance, aimed at a group that is sometimes neglected due to limited available funds: those people in their twenties and thirties.
• Gimme My Money Back - CNN’s Ali Velshi shares the story of the 2008 downturn, and provides plenty of ways for the average person to get back on track, financially.
• Boiled Down Money Goo - In spite of the odd, and perhaps a bit peculiar, title, this book does a pretty decent job of boiling down all those facts about money that you need to know into a simple to understand message (or, ‘goo’) for easy absorption.
• Trading in the Footsteps of Sherlock Holmes - If you are planning on doing more stock trading than buy and hold investing, you could do worse than looking to the deliberate style of Sherlock Holmes for your inspiration.
• The New Coffeehouse Investor – A guide to building up your investments while ignoring the typical Wall Street noise; it’s definitely a nice read for the starter investor.
• Be a Real Estate Millionaire – I know you’re probably suspicious of a book advertised on late night cable television (I was, too), but it’s actually a surprisingly solid introduction to real estate purchasing (if a bit too optimistic for my tastes).
• Jim Cramer’s Real Money - If you’ve ever admired Jim Cramer’s stock picking methods, either as a fan of his show or from his hedge fund work, here’s your chance to learn more about what makes him tick.
• Jim Cramer’s Mad Money - Speaking of fans of Jim Cramer’s show, if you want a view behind the scenes (and to learn some of the lessons that running the show has taught Cramer), here’s another book you’ll love.
• Rich Dad’s Plan for Financial Success (a collection of Rich Dad, Poor Dad; Rich Dad’s Cashflow Quadrant; and Rich Dad’s Guide to Investing) – Here are Robert Kiyosaki’s first three Rich Dad books, all bundled up in one nice, neat little package and ready to read.

Let’s be completely honest: most personal finance advice is not directed toward younger people. There are plenty of reasons for this, some good and some not so good. (Most personal finance magazines don’t write articles directed at young people, so most young people don’t read those magazines because they have no relevant information, and in turn the magazines don’t write articles for the young people who aren’t reading. It’s something of a Catch-22.) The end result is a tendency for younger people to ignore personal finance until much later in their life.

Get a Financial Life is one of the books that bucks the trend. Directed at people in their twenties and thirties, it covers a variety of personal finance information from many aspects of life. Does it provide enough information to help readers, well, get a financial life? Let’s read on to find out!

Summary

After a short introduction, Get a Financial Life opens with a ‘Crib Notes’ chapter, covering everything from insurance needs to preparing taxes in short thirteen page burst. Chapter two is about getting your personal life in financial order. It touches on everything from putting a price tag on your dreams to filling out a form to monitor where your money goes, and ends (as all the chapters do) with a ‘Financial Cramming’ section that summarizes the major points in the chapter on a page or so.

The third chapter covers debt, and how to repay it. Starting with one of the trickiest types of debt, credit card debt, it covers student loans, car loans, and home equity loans, providing information about each type and suggestions on how to handle the debt. Chapter four is all about banking, starting with finding a good checking account and ending with a variety of ways to save, from a standard savings account to Certificates of Deposit (or CDs, if you prefer).

Chapter five gets into investing, focusing on mutual funds and breaking them up into three broad categories: money market funds, bond funds, and stock funds. It stresses the importance of finding a good fund company and keeping inflation in mind while investing. The sixth chapter continues the theme, looking into retirement accounts and the importance of retirement saving (as well as what can happen if you don’t save enough to meet your needs).

The seventh chapter looks into renting or buying a place to live. For renters, there is advice on getting the best deal on rent and helping to ensure that you don’t have to deal with crazy or oppressive conditions from your landlord. For would-be buyers, there is plenty of information about the financial aspect of home-buying and mortgage financing, as well as how to get the best prices. Chapter eight covers insurance, insurance, insurance. From basic advice on shopping for any type of insurance, the chapter then covers a whole range of insurance types, including health, auto, disability, and life.

The ninth and final chapter is all about taxes: how to pay them, and how to minimize how much you need to pay. There is advice on how to fill out the forms and determine your tax rate, as well as advice on how to maximize your deductions and find a decent tax preparer, if you decide to go that route. The book ends with a long list of books for further reading.

Pros

The book is well-written, humorous and very informative. The chapters are generally fairly thorough, most doing a good job of covering their financial topic. There’s also a good amount of humor and congeniality in the writing style, making for a pretty entertaining read.

Cons

There are parts of the book where more depth could be helpful; the investing chapter doesn’t give more than a vague sense of a decent asset allocation, for example. The sheer amount of data in some of the chapters can be a bit overwhelming, or at least make it harder to sort out the most important data.

Overall

Get a Financial Life is a solid introduction to personal finance in all its glory. If you (or someone you know) want to get a decent start organizing their finances, it makes a good introductory guide, if a bit much to take in for some of the chapters.

If there is one financial problem that seems to bother more people in the United States, it’s debt, and the task of getting rid of it. As a nation, we seem to have more trouble handling debt than any other financial task, like investing or drawing down money for retirement. With so many potential customers, there is a pretty sizable market for advice on how to pay down your debt.

Pay It Down! by Jean Chatzky, as you might guess from the title, is one source of such advice.  It’s strictly a book on paying down debt; nothing in here about investing, planning for retirement, or other methods of making your money grow, this book is all about cutting down your debt.  So, is it good advice, or does the book leave something to be desired?  As always, let’s read on to find out!

Summary

Pay It Down opens with a promise, the promise that $10 a day is enough to pay down your debts (regardless of size) and get your financial ship in order. The introduction proper to the book then looks closer at credit card debt, the major type of debt discussed in the book.

The first chapter (or first step, as noted in the book) is about assessing the problem, determining where you stand with your debts, allowing you to break them into secured (backed by a tangible asset that can be seized if you don’t pay up; think car loans or mortgages) and unsecured (nothing tangible backing them up that can be easily seized; your credit cards are the prime example). Once you have a handle on the size of your debt, the short second step covers how to break your challenge into manageable steps, dividing the debt into the amount you have to pay each day to eliminate it completely in three to five years.

Step three is about your credit score, that three digit number that determines how much banks and other lenders will charge you to use their money. There is, as you might imagine, quite a bit of advice on how to improve it, cutting the amount of interest you have to pay and (hopefully) making it easier for you to get out of debt. The fourth step in this process is about tracking your spending, both the fixed categories (rent/mortgage, phone bills, insurance, etc.) and the variable ones (groceries, gasoline, dry cleaning, etc.). For the latter, Chatzky recommends keeping a small notepad with you and writing down all your out of pocket expenses, transferring them to a legal pad at the end of the day.

Once you know where you are spending money, the next four chapters look at how you can cut that spending. The fifth step starts the process, looking at how you can refinance your loans (with a good enough credit score) to cut down your monthly costs or transfer your credit debt to lower interest cards. The sixth chapter continues the process, looking at ways to consolidate your loans, mainly through home equity loans, lines of credit, or cash out refinancing of your home (all of which are likely to be harder to get in our current financial environment).

Step seven is a rather massive one, looking at all the spending categories from step four and seeing where it is possible to cut back while not hurting your life. Each spending category is listed according to priority, from High to Low, so you can get some help in deciding whether gasoline (high priority) is more important than, say, housekeeping (low priority). The eighth step looks at situation where even all that isn’t enough, looking at some of the hard choices, like moving to a lower cost area or putting your children in a public school. There’s also advice on selling some of your things to raise some more money or earning more through a second job.

Once you’re earning more money, the next step in the process (and the book) is how to pay down your debts intelligently, starting with the highest interest rate debt. There’s also advice on how to handle situations where you don’t have enough money to pay all your creditors. Speaking of which, step ten looks at how to handle things going wrong, from handling a shopping problem to dealing with creditors and avoiding foreclosure.

Step eleven is about staying ahead of the game, looking at ways of building an emergency fund (by putting an ‘eleventh’ dollar every time you save into savings). There’s also discussions of insurance and Health Savings Accounts, allowing you to make it through difficult times in your life. The book concludes with the Debt Diet, a guide to how to spend your money and how to pay off your debts, covering ways to stick to the advice given throughout the book as well as how to find further help if needed.

Pros

The Debt Diet is simple, easy to follow, and has lots of helpful advice. There is quite a bit of hand-holding, if you are at a complete loss at where to start. Overall, the advice is useful and a good approach to paying down your debt, particularly your credit card debt.

Cons

There is some dated advice within the book (at least the 2004 edition I’ve been reading), mainly regarding using your home equity to refinance your debts; which is not so easy to do nowadays (to put it mildly). The book is also pretty well limited to only paying down debt; if you are looking for help beyond that, you’ll need to look elsewhere.

Overall

Pay It Down! is a very solid guide to handling debt and hopefully eliminating it.  It helps to break down a seemingly impossible task into quite a few easily manageable tasks.  As long as you only need help with debt pay-off (at least, until the debt is gone), this is a solid book for you.

If you do much personal finance reading, and as you might guess from the fact that I spend a sizable portion of my free time writing a personal finance blog, I do, you come across the same names of commonly cited personal finance advisers again and again.  Names like Orman, Kiyosaki, and Ramsey start to line your shelf, appearing again and again.

David Bach also starts to show up multiple times.  I’ve already reviewed two of his books, and now I’m going back to one of his earlier books, Smart Couples Finish Rich.  Is it a worthy read, even after going through his later follow ups?  We’ll have to read on to find out!

Summary

Smart Couples Finish Rich starts with an introduction that recalls how David and his (then) wife Michelle had trouble organizing their finances when they first got married.  He notes that even though they were both financial professionals and very smart, neither of them had any knowledge about how to combine their finances as a couple.  His book is an attempt to provide that knowledge to other couples.

The rest of the book is broken up into nine steps to help couples get their money under control.  The first step looks at breaking some of the myths that surround couples and money.  From ‘if we love each other, we won’t fight about money’ to ‘it takes money to make money’, there’s several fallacies that take hits throughout the chapter.  The chapter ends with a quiz, to help determine how knowledgeable you both are about your finances.

Step two involves looking at the values that are important to you, to find out what role money should play in your life.  Bach recommends constructing Value Circles (TM), where each partner notes five values that are important to them, to help guide the rest of their financial goals.  The third step looks at putting those values into practice, creating financial goals to help meet their needs.  There’s also discussion of how to get your financial information in order, so you could have a better way to keep your things organized.

Step four looks at one of Bach’s most famous concepts, the Latte Factor(TM), specifically looking at couples.  The Latte Factor, in case you haven’t heard it, is the ability of a ‘small’ daily purchase (say, that morning coffee) to turn into a substantial sum if saved and invested throughout your life.  To find your Latte Factor, Bach recommends keeping track of your finances for seven days to see where you tend to spend too much (and no cheating by changing your financial habits).

The next three steps look at creating three baskets of savings and investments to meet your goals: the retirement basket, the security basket, and the dream basket.  Step five is about building the retirement basket, mainly by paying yourself first using pre-tax retirement accounts.  Bach focuses first on 401(k) plans and similar employer provided plans, but also covers IRAs (including Roth IRAs) and the retirement plans available to self-employed people.  The chapter ends with a series of steps to make the most of your retirement account(s) once started.

Step six looks at the security basket.  It starts by sharing tips on how to build up an emergency fund, from how much to save to where to put it.  There’s also discussions on creating wills (or setting up a living trust), getting health coverage, and building up other insurance policies.  The seventh step covers the dream basket, encouraging each couple to make a list of their five biggest dreams as well as how much they would cost.  There’s also quite a bit of information about the types of investments available for different time frames.

Step eight looks at mistakes that couples make with their money.  From taking a full 30 years to pay off a 30 year mortgage (Bach recommends making extra payments to pay off the mortgage earlier) to buying stocks on margin to not consulting with a financial adviser, there’s a lot of advice provided here in a variety of areas.

The ninth and final step in the book looks at a plan to increase your income, by building up your worth in your employer’s (or clients’, for the self-employed) eyes and then asking for a raise after numerous weeks of preparation.  The book ends with a reminder that as important as money is in life, it’s nothing compared to the love we have for our partners.

Pros

Bach’s writing style is easy to follow, with a relaxed tone and no unnecessary financial terms (and the necessary ones are fully explained).  The book is filled with great ideas and other concepts, even moreso than his later books.  The emphasis on communicating with your partner makes the book much more valuable to anyone in a long-term relationship.

Cons

One of the biggest problems with Bach’s books is they tend to be repetitive; if you’ve read The Automatic Millionaire, many of the same concepts are covered (the Latte Factor, automating your investments, etc.), not providing you with much more information.  If you are not (yet) in a long-term, stable relationship, the emphasis on working with your partner is likely to be frustrating, at least.

Overall

Smart Couples Finish Rich is a very solid, well-organized book that should help couples get on a more solid financial footing and get on the same page, money-wise.  If you’ve read some of Bach’s other books, there’s much in here that is going to sound familiar.  That said, if you are part of a couple, this book will definitely have some unique points for you to consider.

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