The Amateur Financier

Whistles blow, car horns honk, things get thrown around the room and screams echo throughout the room.  The sounds of bulls, bears, and pigs are heard on a frequent basis.  Occasionally, even the sounds of ghosts are heard in the distance.  Is this a sign of the Apocalypse?

No, it’s Mad Money, the investing show from Jim Cramer.  If you ever felt the urge to go behind the scenes of this madness, you can read Jim Cramer’s Mad Money to get an even deeper understanding of the show, as well as Jim Cramer’s broader investment strategy.  Is the book a ‘Buy, Buy, Buy!’, as Cramer’s sound effect board would say?  We’ll have to look closer to find out

Summary

Jim Cramer’s Mad Money is a stock investing book, pure and simple.  The introduction plays up the book as a follow up to Jim Cramer’s Real Money, his first investing book.  It’s designed to share many of the lessons that Cramer learned in his first year or so of running his Mad Money show, in all its crazy glory.

The first three chapters are all about how to buy a stock, Mad Money style.  The first chapter is about knowing yourself and your goals.  Cramer makes the point that different people, at different stages of life, can invest in different ways; when you’re younger, you can afford to take more risks with your money.  The chapter stresses four different aspects that will determine how much (if anything) you should invest in stocks: your age, income, personality, and priorities.

The second chapter is all about doing your homework, at least one hour per week per stock that you own (or want to own), according to Cramer.  He has five areas you need to cover before you buy a stock: how the company makes money, the sector of the market it is in and how that sector has performed, the stock’s performance, how the competition is doing, and looking at the company’s balance sheet.  Chapter three is where you finally buy the stock; always using limit orders (where you set the price you’re going to pay for the stock) and buying a little bit at a time.  Once you buy the stocks, though, the homework has to continue, at one hour per week.

Chapter four looks at the other side of the coin, how to sell the stocks when the time comes.  Cramer provides a number of suggestions for when to sell (no hard and fast rules, as he acknowledges that everyone is different and has different needs).  One suggestion is to sell enough to get the amount of the stock you own back to the dollar amount you initially invested.  Another one is to set a target price you expect the price to hit, and sell when it reaches that price.

Chapters five and six cover the ‘Lightening Round’, the part of Mad Money where Cramer takes phone calls and provides a buy, sell, or hold verdict on a particular stock after just a short period time to consider them.  Chapter five details much of the thought process he goes through during that time, and shares the three dirty secrets he uses to do it every night.  (They aren’t that secret; he (a) has lots of experience, (b) really enjoys stocks, and (c) finds it easier than it looks.)

Chapter six covers how to do the same type of quick analysis yourself (the ‘Lightening Round Home Game’).  It’s a three step process; first, know what sectors (and subsectors) there are, then, form an opinion on each one (whether the automobile sector is going up or down, for example), and lastly, rank the top few stocks (’best in breed’) in each sector.  That way, when you’re asked about a particular stock, you have a ready rubric to help you decide whether it’s a buy or a sell.

Chapter seven covers what to look for in the interviews that Cramer does with CEOs and CFOs.  Depending on how they react (and in particular, how open they are about their company, even if it is currently going through tough times), there’s apparently a lot of information that can be gleaned from these interviews, even if SEC regulations prevent them from revealing anything not disclosed to other investors via public notices.

Chapter eight is a compilation of some of the mistakes that Cramer has made on his show, and the lessons he’s learned from them.  Some of these lessons include how to do the right type of homework (if you’re planning to buy and then sell in the short term, you shouldn’t be looking at the longer term prospects for the company, and vis versa) and that commodities companies are not interchangable, even though their products are identical.  In the same vein, chapter nine covers some of the lessons gleaned from his successes; some examples include to watch what the Street (that is, big mutual and hedge funds on Wall Street) does and mirror that unless you have good reason to think that they’re wrong, and not to be snob and consider all investment ideas, even those that come from an average middle-class life.

The last few chapters go into more depth on the show itself; chapter ten covers how Cramer chooses the stocks that are to be featured on his show, including watching what his charity fund invests in and paying attention to what he likes and dislikes on the show itself.  Chapter eleven covers many of the aspects of the show itself, from his trademark ‘Boo-yahs’ to the sounds on his sound board and what he intends them all to mean.  The book ends with a worksheet to evaluate stocks (a la Chapter two) and a revised guide to cyclical investing (which he introduced in Real Money).

Pros

-Intelligent and Insightful: Although you might not guess it from watching the show, there is in fact a method (and a rather impressive one) behind what Cramer says and does in the course of his broadcast.  He emphasizes the importance of doing thorough research before making a stock investment and knowing how to read through the information provided by companies.  If you followhis techniques, you should have more success in stock investing than if you merely follow stock tips (including, interestingly enough, the tips on Mad Money).

-Stresses the Importance of Research: Almost everywhere you turn in the book, you’ll find Cramer hammering home the need to do research before and after any stock purchase.  A repeated refrain throughout the book is the need for at least one hour of research per held stock per week to keep up on the changes with the company or the stock that might change its prospects.  Add in the warning against buying a stock recommended on his show (or any show) in the first twenty-four hours, and you have a surprisingly sedate argument for a calm, methodical investment method from a guy most famous for almost literally bouncing off the walls on screen.

-Entertaining: Probably not a surprise, the book is rather amusing, even laugh-out-loud funny at times.  Even when discussing things like P/E and PEG ratios he manages to be more entertaining than many personal financial writers are while trying to make jokes.  It makes the book a rather quick moving read, as well as a general pleasure.

Cons

-Aimed at Mad Money Fans: If you haven’t ever watched Cramer’s CNBC show, much of the book will make little sense.  After the first four chapters (which are fairly useful regardless of how much CNBC you view), the book pretty much turns into all Mad Money, all the time.  The last few chapters in particular are less investment advice, more behind the scenes.  If you’re not a fan, much of the book will seem rather unhelpful.

-Lots of Information, Without Much Explanation: The parts that do focus on investing directly (rather than Mad Money) are useful, but in his attempt to give you all the information you need for investing in a few chapters, Cramer sometimes makes his book nigh incomprehensible.  This is most notable in chapter two, where you get a flash lesson in cash flow statements and balance sheets.  It took several read-through to get everything that Cramer was trying to illustrate (and I write about this stuff for my blog).

-Focuses on Short(er) Term Trading: While Cramer doesn’t explicitly recommend day-trading (and chides people for doing so), he does tend focus on short term investing, holding stocks for months or even mere weeks, to say nothing of buying stocks in small portions over a period of time.  While this can be profitable (Cramer himself is proof of this), for many people it can lead to excessive buying and selling.  If you can keep up the research that Cramer recommends, it can work out, but otherwise, it just adds to your costs.  (Plus, as you’re probably aware, in the mutual fund world, indexes are more profitable than actively managed funds for exactly this reason.)

Conclusion

If you’re a huge fan of Mad Money and want to learn how to play along at home in a smart manner, Jim Cramer’s Mad Money might be right for you.  If you’re simply interested in learning how to buy and sell individual stocks, you’re probably much better off with Jim Cramer’s Real Money, which provides more information for the first time stock investor (and less promotion for the show).  If you’re not interested in individual stocks at all, Jim Cramer’s books, while still interesting, probably aren’t the best for you.

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One of the biggest problems with many personal finance books is that they are written with the assumption that everyone is the same when it comes to money.  There’s a single path to financial security that is laid out, which may be different for each adviser, but assumes that everyone has the same goals and end desires.  You might not be on the same step, but inevitably, you’re moving toward the same goal.

Master Your Money Type from Jordan Goodman takes a different approach.  Rather than assuming that everyone is the same when it comes to money, it looks at six different money ‘types’; distinctive personalities and approaches to earning, investing and otherwise using money.  Does a more varied approach yield a better personal finance book?  Let’s find out.

Summary

The first chapter starts out with the basic premise: that by understanding how you deal emotionally and psychologically with money, you can get a better grip on your finances and control your spending, investing, and saving habits better.  It then provides a brief overview of the six money types covered in the course of the book: Strivers, Ostriches, Debt Desperadoes, Coasters, High Rollers, and Squirrels.

The second chapter takes a closer look at the emotional relationships we have with money, and how it can affect our attitudes and actions.  As Goodman notes, there are many different things that money can mean to us; for some of us, money is a source of security, for others, it’s a source of power, and for still others, it means means love, happiness, or a way to relieve our pain.  These feeling are born from a number of different sources, from our parents’ and grandparents’ attitudes about money to our experiences in childhood and as young adults.  The chapter ends with some of the basics of acknowledging, confronting, and changing our undesirable fiscal personality traits in order to get our financial house in order.

The next six chapters (which compose the bulk of the book) look over each of the aforementioned personality types in depth.  Each one explains what the main traits of the personality type are, the pros and cons associated with each type, and several examples of people whom Goodman has worked with in the past who exemplify those those personalities.  He then covers some of the more harmful traits each personality exhibits, and provides a shift in thinking to help rectify them.  Once the emotional stuff is out of the way, he provides a financial plan to help each type get their finances under control, usually with tools most appropriate for each type.  Each chapter ends with a list of resources that will be most helpful to people with those personalities.

First up in chapter three are the Strivers.  These are the people with a strong desire to be successful, or more importantly, to be perceived as successful by those around them.  At their best, Strivers are driven, focused, and determined to make their goals a reality; at worst, they stretch too far to appear well off, overestimating their income and underplaying their expenses.  The solution for this overreaching is to rein in the tendency to stretch their budget to show off their self-worth, and there are numerous budgeting and cash flow tools at the end of the chapter to allow them to still put their wealth on display, but doing so while staying in budget.

The second major type is the Ostriches, so called because they bury their heads in the sand when it comes to money (never mind that real ostriches don’t do that; it’s too good an image to resist).  The good news is that this group isn’t consumed with money, but they take it too far, not knowing (or caring) enough to get their money under control, and sometimes falling for bad advice because they don’t have the savvy to realize how bad it is.  The solutions given are to take control of their money, in the least painful ways possible, by automating their savings and investments as much as possible.

The next chapter covers the Debt Desperadoes, possibly the group with the fewest positive traits (mainly the ability to bounce back from a crash) and several negative ones, including denial of the reality of their situations.  The chapter opens with a quiz to see if you’re spending too much and several of the reasons that people can get in high levels of debt.  The list of financial solutions range from creating a financial plan to deal with the existing debt to the possibility of bankruptcy.

The Coasters are an odd breed, having a a decent handle on their spending and earning, but not having a longer term plan.  They have a tendency to prefer stability to change (even positive changes).  There’s a sub-category called Optimists who have a tendency to believe that everything will work out, and that the universe will provide what they need in life.  The major piece of financial advice for these groups is to expand their financial planning to ensure that their plans will cover ALL their goals, with plenty of retirement planning tools included.

The High Rollers are next; their pros include a high tolerance for risk and belief in their vision, while their biggest problem is the tendency towards thrill-seeking and gambling.  The major suggestions include making educated gambles, shifting a portion of invested money into safer investments like bonds, and making sure that the money put into speculative ventures can reasonably be lost without adversely affecting longer term goals.

The final group is the exact opposite; Squirrels value stability and safety over everything else, and as a result, have a tendency to live much below their means and not enjoy life as much as they could afford to do.  This is taken to the extreme in the sub-type of Bag Ladies, who tend to accumulate a great deal of wealth without any enjoyment (think of the stories you’re heard of the people who live like paupers and end up leaving several million dollars to charity when they die).  The solution is to slowly bump up the risk they take, to be better prepared for the future.

There’s a list of resources at the end of the book, providing a collection of material that could be useful to anyone who needs further information.

Pros

-More Individualized Approach to Personal Finance Advice: As mentioned at the beginning of this article, one of the strongest advantages of this book is the lack of a ‘one-size-fits-all’ attitude.  The book understands that all the readers are not the same, and attempts as best it can to tailor the advice in such a way as to be helpful for everyone.  While a book can’t hope to provide every single person with a unique plan for financial success, it does manage to differentiate significantly to help a wide variety of people.

-Interesting View of Money and Psychology: In a similar vein, too many books don’t take into account the effects of individual personalities and attitudes on how to handle money.  While some books cover the problems or goals for a particular group (get out of debt books for Debt Desperadoes, for example), a holistic approach for many different personalities is a bit of a rarity.  Getting advice on a variety of different money issues from both an emotional and monetary perspective helps to handle numerous different problems.

-Solid Financial Advice: It might seem like this book focuses on the mental aspect of using money, possibly skimping on the details of how to actually manage your money.  But, Goodman provides a solid foundation of money management and plenty of tools to help plan your financial future, from retirement planning figures to basic budgets, spread throughout the book.

Cons

-Sometimes Hard to Find Needed Information: Since the book is organized primarily according to the money types rather than the tools provided, it can be hard to find the budget tables (in the Striver chapter) or the investment return tables (unexpectedly, in the High Roller Chapter).  Given that many of the financial tools could be helpful to multiple types (there are several references telling one group to look in a different chapter for the appropriate tools), it seems like a better organization would be to put all the financial planning tools in one section, like an appendix.

-No Advice for Blended Types: Although there are early comments from Goodman about the need to consider that you may fall into multiple types and need to look at all aspects of your money type, the book doesn’t make this easy.  All the examples are solidly (and usually intensely) within one type and the book provides advice for only one type at a time, some of which contradicts the advice for other types.  A bit more advice for those who fit into multiple types (perhaps a section at the end of each chapter describing how to handle money for people with some traits that fit into another type) would be helpful.

-Too Many Resource Pages, in Too Many Places: At the end of each type chapter, there’s a list of resources specifically suited to that money type, and there is also an appendix that includes a list of general resources.  Many of the recommended books, magazines, and websites, showed up multiple times following the individual chapters, and again in the appendix.  Cutting down the number of places to list resources would make the book run smoother (and seem a bit less like an attempt to sell other books).

Overall

Master Your Money Type is a pretty solidly written book.  A few organizational changes would make the book a bit more useful, but it’s still useful and interesting.  Knowing your money type is an interesting point of view for money management, and it’s good to see someone looking at finances through a psychological perspective.  If you’re looking for a solid, unique personal finance book to help understand the basics, it makes a good introduction.

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Imagine working only one day each week.  Further imagine that during that one week of work, you aren’t putting in a full eight hour (or more) day, but instead, you’re only working four hours, max.  To top off, rather than going into the office, dealing with a horrible commute, gossipy coworkers, and bland coffee, you’re ‘working’ by checking into your business from an internet café in Paris, fitting it in between a tour of the Louvre and your weekly tango lessons.  Sounds like a dream, right?

Living that sort of life is the main point of The 4-Hour Workweek.  Timothy Ferriss writes about redesigning your lifestyle to ‘Escape 9-5, Live Anywhere, and Join the New Rich,’ as noted by the book’s subtitle.  He promises to help us design the lifestyle of our dreams, and make a decent profit at the same time.  But is it just hype, or can he really show us how to remake our lives?  Let’s read on:

Summary

The book starts with a short FAQ to quell some of the questions that likely popped into the readers’ heads upon reading the title and learning the purpose of this book.  The book then opens with a story of Ferriss preparing for a dance competition as an introduction to the main goal of the book: allowing the reader to design their own ideal lifestyle as a member of the ‘New Rich’ (NR, as it’s frequently abbreviated).  He introduces his method of lifestyle design, DEAL: D for Definition, E for Elimination, A for Automation, and L for Liberation.  Before getting into the details for all these steps, he provides a short chronology of his life, how he built a successful business that started to consume his life, and how he finally learned to automate it and escape.  Then we get into his plan for us:

D for Definition

The first part of the book sets up Ferriss’s definitions of New Rich, and how they compare to ‘Deferrers’, those who follow the typical plan of working, saving, and eventually retiring.  He stresses that though wealth is possible (even likely) following the NR plan in the book, the more important issue is having regular cash flow without needing to work long to obtain it, and using that money to fund your dream lifestyle.  The second chapter is about changing the standard rules regarding work and retirement, particularly when ‘Retirement is a worst case scenario’; that half a lifetime of work in exchange for the possibility to enjoy life when you are old is a poor deal.  There are a total of nine other principles Ferriss attempts to challenge, from asking for forgiveness rather than permission to money not being the answer.

The third chapter chapter is all about dodging bullets, defining the worst that could happen if you follow this plan, and how to get your previous life back if something fails.  It asks you to imagine the worst situations you could find yourself in if you followed the advice in the book, in an attempt to show how easy it would be to recover.  The fourth chapter is called ‘System Reset’, and is all about reorienting your perspective to achieve the (seemingly) impossible.  It introduces ‘dreamlining’, the process of writing down your dreams and creating time lines with actionable goals in order to meet those dreams.

It’s also the first chapter than ends in a comfort challenge, where Ferriss encourages the reader to do a number of tasks that most people would find uncomfortable, in order to help them ‘develop the uncommon habit of making decisions’.  The rest of the chapters in the book end with a comfort challenge, ranging from making eye contact on the street (Chapter 4) to asking for the number of several attractive strangers (Chapter 6) to laying down randomly in the course of the day (Chapter 11).

E for Elimination

The next part of the book covers how to eliminate unnecessary activity from your life.  Chapter five focuses on Pareto’s law, the concept that twenty percent of your effort will result in eighty percent of your results.  The recommendation is to cut out the less productive portion of your effort (the 80% of your efforts that result in only 20% of your results).  It also brings up Parkinson’s Law, where tasks swell to fill the time allotted to complete them; the suggestion is to cut down the time allotted to the minimum in order to increase productivity.

Chapter six is rather short, which is appropriate for its subject: limiting information intake.  The message is to cut down on the amount of information absorbed, whether from books, newspapers, magazines, or the internet.  Chapter seven is about cutting down the number of interruptions and pointless tasks you have during the day.  It suggests ignoring unproductive information (meetings, phone calls, and email) as much as possible and dealing with vital information in batches.  It also suggests empowering employees so they can make decisions on your behalf without needing to contact you for relatively minor issues.  If you don’t have any employees, don’t worry, we’ll cover that next…

A for Automation

The next section of the book is all about automating your life and your income, allowing you to enjoy life without as many worries or troubles.  Chapter eight is all about outsourcing your life; it highly recommends getting a virtual assistant (VA), someone who can manage many aspects of your life via the internet.  The chapter expands on the concept of VAs, creating a step by step description of how to find a VA (or a team of VAs), whether to choose someone in a Western country or the developing world, and what sort of tasks they can handle.

The next three chapters cover the steps of how to create an ‘Income Autopilot’.  Chapter nine is about finding your muse; finding a niche to which you can sell and then choosing a product to sell.  You could resell a product, license a product, or create a product of your own, as long as it meets the need of your market.  In chapter ten, you microtest the product to ensure that is a demand, building websites, testing ads, and otherwise using low cost methods to test the waters to see if there is any desire for what you intend to sell.  Finally, chapter eleven focuses on how to remove yourself from the equation; when and how to shift management of the daily function of your operation onto others.  It also provides tips on how to smooth the transition and minimize problems as you work to make the business self-sustaining.

L for Liberation

The last section of the book focuses on how to escape from the office.  Chapter twelve covers how to slowly get your boss to allow you to telecommute, starting with a day or two each week (or a one or two week trial period), and gradually increasing your time out of the office until you never step foot in the office, and instead do everything remotely.  The focus is on using your improved productivity (from the Elimination part of the book) to get your boss to agree to the remote working arrangement.  If that doesn’t work, there’s always plan B: chapter thirteen is about killing your job, and mainly provides counterarguments to some of the major reasons that people don’t want to lose their employment.

Chapter fourteen provides one way to use your new found freedom from the office: mini retirements.  These are short periods (one to six months) of relocation, usually to another country, with the goal of living life to the fullest while you’re still young, and making them a regular part of your lifestyle.  The rest of the chapter covers the details of how to make such a trip work, including a countdown of how to get your finances, household, and important documents in order for an extended stint away from home.

Chapter fifteen provides more information on how to fill your time and feel fulfilled when you no longer have to work.  The suggestions range from learning for the sake of learning to helping various service focused charities.  The sixteenth chapter is a list of 13 mistakes made by the New Rich, including working for the sake of work and losing sight of your dreams.  The final, unnumbered chapter is a poem by David Weatherford, reminding us to slow down and enjoy life.  The book ends with a list of some recommended reading material and a list of further content provided on the accompanying websites (some of which seems a bit racy, but that’s a separate issue).

Pros

-Interesting, Unique Perspective: This book has a very refreshing perspective on money.  Rather than the typical money book, which makes the assumption that you’re going to be working for many decades before retiring to live off your savings, Ferriss tries to create a method by which you can retire much earlier, while still maintaining a standard of living as high (if not higher) than you had before.  It’s nice to see a fresh approach to personal finance, one which may appeal to those who feel ill served by traditional personal finance books.

-Good Sets of Resources: Each chapter provides a great deal of information to be used to complete the goals set out.  They all end in a ‘Questions and Actions’ section that provides next steps toward achieving a 4 hour work week.  There’s also a list of other resources (almost all online) at the end of nearly every chapter.   Even if you aren’t completely sold on the lifestyle described in the book, many of the suggestions could still be useful, from eliminating extraneous information to hiring a virtual assistant.

-Humorous and Entertaining…: The book is very entertaining, and makes a rather easy read.  It’s interesting and involving, drawing you into the methods and means with a gripping tone.  There’s also a strong element of humor (much of it Ferriss poking fun at himself) running through the book, making it read more like an entertaining biography than a how-to manual.

Cons

-…But Sometimes Annoying: At times, the stories about his exploits get annoying.  Yes, given the point of the book, trying to design your ideal lifestyle, it does make sense to show what he’s done with his own lifestyle.  Still, it doesn’t stop me from wanting to hit him at various points in the books, usually after he’s described one of his adventures traveling the world.

-Most Applicable to White-Collar Workers or Entrepreneurs: The techniques described in this book, from enhancing your productivity in the office to telecommuting as a lifestyle, are virtually limited to those who work in the office, and frequently to those who have underlings to whom they can delegate responsibilities.  If you are in a position where your presence is physically required (anything from blue collar work to quality control), or at the bottom of the totem pole at your company, there’s a limit to what you can get out this book.

-The Lifestyle is Not for Everyone: Not just because you may not want to gallivant around the world or create businesses with the goal of automating them as quickly as possible (although, that certainly could be true).  But there’s a more basic reason: the lifestyle design espoused by the book requires a large support staff; at one point, Ferriss notes that his company requires 200 to 300 people to keep it running.  Simple math tells us that, even taking outsourcing into account, only a small portion of the population (a few percent, at most) can join the ‘New Rich’ before society ceases to run.  Just something to consider as you read through the rest of the book.

Overall

The 4-Hour Workweek is a bit like an overstuffed buffet.  There’s a great deal of information to be considered, much of it stuff I’ve never seen mentioned elsewhere.  Even if the overall buffet does not seem quite to your tastes, there’s probably something worthwhile to consider, from eliminating some of the distractions in your life to hiring a virtual assistant, that you probably haven’t considered.  It’s worth a read through, just to see the variety of ideas and new concepts that are suggested, in order to see if any can apply to your situation.

(Note: The version of The 4-Hour Workweek that I read and used for this review was the 2007 edition.  Recently (in December 2009) a new version, The 4-Hour Workweek, Expanded and Updated, was released, which touts over one hundred pages of new material.  I haven’t read this new edition as of the time of this post (although it’s on my to-read list), but as long as the general concepts are the same, I imagine this review will still be applicable.  Still, fair warning that there is a newer, potentially significantly different version out there.)

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Ah, Robert Kiyosaki.  So many contradictory thoughts come to mind when I think of you and the books you’ve authored.  On one hand, you were the first personal finance writer who really caused me to stop and re-evaluate how I was using my money, and for that I thank you.  On the other hand, much of your advice, particularly in your first book Rich Dad, Poor Dad, seems highly inappropriate for me at best, and downright dangerous for most people at worst.

Given those two considerably different views, I had to make a serious effort to read your second book, Cashflow Quadrant, with an open mind.  I did my best to judge it not based on my opinion of you, your critics, and even your first book, but rather the merits and demerits of the book itself.  Is it a must read for all would be investors, or something that most everyone can skip?  Let’s read on:

Overview

The book starts by introducing the Cashflow Quadrant(TM), an illustration of the four primary ways to earn money.  It’s shaped like a plus sign, with four letters in each corner, separated by the plus’s cross bars.  In the upper left, there’s an E (for employee), the lower left has an S (for self-employed), the upper right has a B (for business owner), and the lower right has an I (for investor).  (Look over at the cover of the book; you should be able to make it out.) Much of the rest of the book refers back to this diagram at one point or another, so having a good understanding of it is important.  In fact, before the introduction ends, Kiyosaki notes that his ‘Poor Dad’ (his biological father) always recommended he stick to the left side of the quadrant (the E and S side) while his ‘Rich Dad’ (his friend’s father, who gave him advice on how to become rich) suggested that he should focus on the right side (the B and I side).  The first chapter begins to introduce the idea of the four quadrants in more detail, as well as noting that it’s possible to be rich or poor in any one of them.

The second chapter starts to introduce the differences between the four groups.  According to Kiyosaki, E group employees desire security, the S group of self-employed people wants to do it themselves, B group business persons want to be surrounded by those who can help them build and grow their businesses, and investors in the I group use money to make money.  There’s a few side discussions in the chapter clarifying his definitions and expanding where he suggests people who wish to be wealthy should focus their attention (in the B and I quadrants).

The third chapter covers why people choose security over freedom.  Kiyosaki discusses how many people will, as they increase their salary at work or in their small business, spend more and start to borrow even more, leading to a cycle of ever increasing debt even as their income is rising.  He also covers some patterns of the rich (moving from the S quadrant to the I quadrant by investing their earnings, for example) and the not so rich (continually changing E quadrant jobs).  The fourth chapter covers the three types of business systems that Kiyosaki recommends; traditional C-corporations, franchises, and network marketing.  He goes into some detail about each type of system, giving particular recommendations to network marketing.

The fifth chapter covers the seven levels of investors, from level 0 (those who have nothing to invest) to level 4 (the long-term investor, who invests primarily in mutual funds) to level 5 (sophisticated investors who can make their own investments) and finally to level 6 (capitalists, who create investments like businesses and sell them to the market).  He ends with a note that you have to become good at being a level 4 investor before you can go on to level 5 or 6.  The first section of the book ends with a chapter advising you to see money with your mind, since it is just a concept.

The second part of the book is about ‘Bringing Out the Best in You’.  Kiyosaki starts with a chapter encouraging the reader to be who they want to be.  The eighth chapter covers how to become rich, focusing on changing your mental attitude toward money and becoming rich.  He spends quite a bit of time covering various emotional and mental hang ups many people have, attempting to dispel them.

The ninth chapter goes over some of the heroes and villains of past financial crises (and rather astutely notes that Alan Greenspan would become a villain in a financial downturn).  He covers some more advantages to using real estate to invest and starting corporations, mainly the tax advantages inherit in both.  The chapter ends with a sidebar, reminding readers to stay up to date on tax law and use the rules to their advantage.

The tenth chapter kicks off the last section of the book, on thinking like a B or I individual.  This chapter covers taking baby steps learning to think like a rich person, gradually re-educating yourself to think in terms of the possibilities for businesses or other investments that are out there.

The last seven chapters of the book are organized as seven steps to finding your financial fast track.  Step 1 is to mind your own business, learning about your financial situation and developing a plan to become wealthier.  Step 2 is taking control of your cash flow, determining where you money comes from and goes.  It ends with a pretty solid, if ambitious, plan for paying off your credit debt each month.  Step 3 is knowing the difference between risk and risky, the difference between make intelligent investments and never doing any investing.

Step 4 is to decide which type of investor to be, one who knows nothing, one who seeks ready solutions, or one who seeks problems to try to fix.  Step 5 is on seeking mentors, who could be anyone from good role models you want to follow to spiritual role models who can inspire you.  Step 6 is all about turning disappointment into strength, learning from the mistakes you’ll inevitably make.  Step 7 i about having faith; in this case, faith that you can accomplish your financial goals.  The book ends with a table comparing the Broke Masses, Successful Middle Class Investors, and the Rich on a number of features, from investment vehicles to the resources they use.

Pros

-Easy to Read: Kiyosaki is definitely good at creating a compelling narrative, and this book is no exception.  You should have no problem reading and following along with the points he makes, as well as the diagrams he shares.  The book is pretty easy for anyone to pick up and read.

-Actionable Advice: Particularly in the last set of seven chapters, Kiyosaki lays out a number of simple, easy to follow steps that make it possible to become wealthy using his methods.  Particularly compared to Rich Dad, Poor Dad, having real, workable advice is a good step in the right direction.

-More Inclusive Perspective: Again, compared to his first book, Cashflow Quadrant does much more to acknowledge alternate view points on wealth and money.  Kiyosaki notes that people in all four quadrants can become rich, for example, and also points out that most of the millionaires in the US would be considered level 4 investors on his scale.  All of this makes it much easier to get something out of the book, even if you don’t follow all his advice.

Cons

-…But Not Completely Unbiased: While not as bad as the first book, Kiyosaki still doesn’t show an excess of respect for those in E and S quadrants.  Some of his comments do have justification (the relatively high taxes paid on earned income, for example), but many of them are unfounded, attributing traits of fear or perfectionism onto those who are self-employed or work for someone else.

-Selective Emphasis of Risk: Kiyosaki is perfectly happy to discuss risk… the risk of not investing according to his principles.  What he mentions only in passing is that doing the high profit potential deals he emphasizes does have the risk that many, if not most, will fail.  Unfortunately, even when acknowledging such possible failures, there’s no mention of how to prevent or recover from them; the idea of insurance or an emergency fund never comes up.

-Denigration of Education: A continuing theme in Kiyosaki’s writing is the relative unimportance of education.  From calling his highly educated father ‘Poor Dad’ to maintaining that street smarts are much more important to success than book smarts to sharing a list of anti-education quotations in the middle of a chapter (sent to him by Poor Dad, no less), he has no fondness for education, and seems to delight in denigrating it.

Conclusions

Overall, I liked Cashflow Quadrant much better than Rich Dad, Poor Dad.  Yes, there are still flaws; it under-emphasizes risk and devalues formal education.  But it’s a much more practicable book, with specific suggestions for those trying to follow Kiyosaki’s advice, as well as including some advice for those who aren’t ready for his particular brand of investing.  It’s a decent beginning investing book; even if you didn’t really care for Rich Dad, Poor Dad, it might have some points worth knowing.

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If you’re a long-time reader, you’ve probably learned that I’m a fan of David Bach.  He makes good sense with most of his suggestions, and has a cheerful, optimistic style that makes you feel hopeful about your financial future.  I wouldn’t go as far as calling him my favorite personal finance adviser of all time, but he’s definitely near the top.

So, when I saw that he had come out with a new book specifically designed to target some of the areas where people have had trouble in the past few years, I decided to give it a shot.  Start Over, Finish Rich is designed as a guide to getting yourself and your finances back on track in 2010.  Is it the possible solution to all of your financial woes?  Let’s read through and find out!

Summary

Start Over, Finish Rich is organized as a series of steps to overcoming the financial problems so many of us seem to be facing lately.  The first step (and first chapter) is on recommitting to wealth.  After a personal story (all of Bach’s books that I’ve read have featured someone who shared a story with Bach about their personal financial journey) about a woman having trouble with money in spite of doing ‘all the right things’, Bach urges everyone to not give up and instead, to continue to strive to become wealthy.

The second chapter covers finding your money; organizing and understanding your current financial standing.  Bach presents the system of hanging files he recommends in order to organize and get your financial life under control.  The chapter then brings up the ‘Latte Factor’(R), his term for small, everyday expenses that use up much of our money without us even noticing.

Handling credit card debt is the subject of the third chapter.  For  people who can afford to make the minimum payments on all their debts, Bach recommends his DOLP(R) (Dead On Last Payment) method; paying as much extra as you can afford on the debt with lowest ratio of total amount owed to minimum payment due.  If you can’t make your minimum payments, he provides some advice and a few resources to get help paying down your debts (as well as some warnings about credit counseling and debt settlement companies).  The chapter ends with a brief overview of the changes brought on by the new CARD legislation.

Step four is a short guide to checking and fixing your FICO score, explaining how to check your score and a list of steps to improving it, covering suggestions from paying down your credit card debt as much as possible to keeping your old cards active by occasionally using them.  Chapter five goes over creating an emergency fund, starting with where to put your money and how much you should have (at least three months worth, up to enough to make you feel comfortable).  He emphasizes using a bank with FDIC insurance to ensure that even if your bank has financial trouble, your money will be protected by the federal government.

The sixth chapter is about getting your retirement saving and investing back on track.  Bach suggests not panicking (and definitely not pulling out all your investments just because they’re down), considering target date funds for your investments, and how to get advice if you need it.  He also emphasizes the fact that pre-tax accounts allow you to invest more money than you actually see removed from your paycheck (and that if you get a decent match on your 401(k) contributions, as well, you can end up investing more than twice the amount of money that actually disappears from your pay check).  The short seventh chapter provides some advice on ‘Making It Automatic’, automating your investing and other financial actions to simplify your life (sort of like a micro version of The Automatic Millionaire).

Chapter eight covers how to get rich in real estate.  Much of his enthusiasm for real estate echoes what he said in The Automatic Millionaire Homeowner, although he makes a few points specific to the current real estate market.  He suggests refinancing your mortgage while you have the time, not bailing out even if your house is underwater, and how to get the bank (or a government organization) to help modify your loan if it comes to that.  The chapter finishes with some advice on investing in real estate, either directly or via REIT funds.

Chapter nine covers ways to help save for the cost of education for your kids, giving a list of rules about such savings (not to save for your children’s education before you save for your own retirement, for example) and a number of possibilities if you can’t quite repay your debts.  The tenth chapter is a list of twenty-five ways to cut down on your expenses, covering everything from cutting out cable television to not playing the lottery any more.  Not a bad set of suggestions for decreasing your expenses.

There’s an eleventh ‘bonus’ chapter that covers many helpful sites if you are trying to donate to charity (many of which I’ve been using, with Bach’s prompting in the Automatic Millionaire, in order to do my own donation research).  The book ends with Bach sharing the story of his recent divorce and how he was able to hit the ‘reset button’ when he and his wife separated.

Pros

-Very optimistic: As always, Bach is very optimistic and supportive in his writing, giving plenty of encouragement to the reader to get their finances in shape this year.  He provides lots of encouragement to the reader, as well as helpful suggestions to help get your financial life in order, all in a very upbeat manner.

-Simple, Clear Instructions: Bach is never opaque with his recommendations or more complicated than he needs to be.  Everything that requires substantial effort is broken down and explained in a step by step fashion, making it easy to use this book as a guide to reworking your financial life.

-Engaging style: The book never seems hard to read through, coming off more like a friendly conversation with a helpful adviser than a detailed list of does and don’ts for you financial life.  The overall effect makes the book much more readable, and the whole thing goes by quite quickly.  Being interesting also helps make the suggestions and advice in the book more memorable.

Cons

-Some Questionable Advice: There are several points in the book where Bach’s recommendations (or his omissions) raised my eyebrows.  His DOLP method of paying off debts, for example, isn’t the most effective way to pay off your debts (I ran the numbers to prove it), and he champions traditional IRAs and 401(k)s without any acknowledge that the Roth versions will be better if tax rates rise in the future (which they likely will).  His advice isn’t bad, per se, since you will pay off your debts and build up your retirement account, but it is just a bit incomplete.

-Limited Depth: Even more so than the previous Bach books that I’ve read, Start Over, Finish Rich, covers a wide swath o f personal finance territory, necessarily meaning that some of the topics get short shrift.  If you are looking for a thorough guide to real estate ownership, investing, or finding ways to cut down your spending, you’ll need to expand your search beyond this book.

-More of the Same: If you’ve read a David Bach book before, many of the terms I’ve used in this review are probably familiar to you.  Things like DOLP, the Latte Factor, Make it Automatic, and even his fondness for home ownership have all been covered in his earlier guides.  If you’ve read some of Bach’s previous books, particularly the Automatic Millionaire/Finish Rich books, the amount of new material in this book will be under whelming.

Overall

If you’re new to David Bach’s writing, it’s definitely worthwhile to read through Start Over, Finish Rich, learn his philosophy, and try to apply many of his suggestions (being aware that sometimes he misses some possibilities, of course).  He makes many good points, and it’s always nice to learn another perspective on savings, investing, debt elimination.

If you have read his books before, it’s a less clear decision; if you found his advice helpful before, the new content might justify the purchase of this book.  If not, you might want to consider something else, since there’s not much new information here, and he certainly hasn’t made any big departures from his established positions on most monetary issues.  Good luck to anyone who needs to start over, in either case.

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You might not be aware, but I’m somewhat of a night owl.  It’s been quite helpful for working on the third shift; naturally being awake when most other people are asleep makes it that much easier to stay awake during the night.  But it has downsides, as well; on my nights off, there was virtually nothing to do.  By three or four in the morning, all the stores and bars are closed, so there was nothing to do but blog and watch late night infomercials.

It was on these infomercials that I first encountered Dean Graziosi and his book, Be a Real Estate Millionaire.  For those of you who haven’t encountered him, either because you never stay up that late or have better things to do when you are awake at three in the morning, he is a real estate guru.  That phrase alone probably sends up some red alerts for you, as it did for me, but when I saw his book in the store, I decided to pick it up and give him a chance.  Is there anything worthwhile in his message?  Let’s see.

Summary

The book is broken up into three different sections.  The first, modestly titled ‘Making a Fortune in Real Estate’, starts with a chapter about why real estate investing is a good idea (emphasis is put on being able to use leverage and borrow money).   The second chapter provides a brief overview of the different types of real estate markets, as well as why Graziosi favors residential real estate.

The next three chapters cover different factors to consider in the national and local real estate markets, to determine where you are in the real estate cycle.  Chapter three is an overview of national factors, like interest rates and inflation that can affect the real estate market nation-wide.  Chapter four goes into local factors for real estate markets, such as supply, demand, job growth and construction.  Chapter five shows how to apply these factors to your real estate market.

The last chapter in this section goes over how to find, buy, and sell real estate.  There are sections on what to look for in a property, how to pay for the real estate (mainly referencing future chapters in the third section), and people you should contact in order to buy and sell property.  The chapter end with a section on different strategies for making money from real estate, from buying and renting it out to flipping it.

The second section of the book is called ‘Building a Foundation for Success’.  The first chapter in this section covers getting your finances in order.  It’s full of good suggestions (most which can be found elsewhere on this very blog, for that matter), from building up your credit to tracking your spending.  Most of the suggestions in this chapter are pretty solid, even if you aren’t planning to invest in real estate.

The next two chapters cover how to remove mental blocks to success and overcome your fear of failure; the book starts to sound more like a self-help pamphlet than an investing guide at this point.  Chapter ten covers the basics of time management, so you have time available for real estate investing.  Chapter eleven finishes off this section by providing help with setting goals and then achieving them.

The third part of the book, ‘Creating Real Estate Wealth, finally gets to the meat of real estate investing.  Chapter twelve outlines the various types of (residential) real estate that are available, from single family homes to apartments, to give the reader an idea of what is out there.  Chapter thirteen covers various types of loans, deeds of trust, and mortgages, the various ways you can get funding for real estate investing.  It continues to go over the various sources you can consider tapping for loans, from banks to private investors, before covering the array of mortgage types available.

Chapter 14 covers buying real estate with no money down, covering a range of ways to purchase property without having any money on hand (although several, like using credit card advances or pulling equity from whole life insurance, are really alternative methods of getting money).  Chapter 15 covers lease options, where you lease a house with the option to buy it after a period of a year or two (with part of the lease money being applied to the purchase price).  Chapter 16 covers foreclosures, investing in property that has been seized by either a bank (if the previous owner failed to pay their mortgage) or a government agency (if the previous owner failed to pay their taxes).

The next two chapters chapters expand on some of the techniques in Chapter 16.  Chapter 17 covers how to purchase a home that is about to go into foreclosure, REOs (Real Estate Owned properties; those that have been seized by a bank) and short sales, where the home is sold for less than the present owner owes on their mortgage.  Chapter 18 covers tax liens (when the government requires that back taxes be paid or the owner evicted) and tax sales (when seized properties are sold to cover back taxes owed).

Chapter 19 covers some of the basics of managing a rental property, from finding good tenants to advice on collecting the rent.  He provides some basic advice on how to budget for repairs and improvements to your property, as well as how to deal with bad tenants.  The chapter ends with some advice on finding good property managers.  The final chapter is a short list of suggestions for how to get started investing, from creating an financial worksheet to see where your finances stand to finding advisers to help you invest.  The book ends with a short glossary of some of the terms used throughout.

Pros

-Optimistic: This book is nothing if not upbeat.  Grazisoi is, by all appearances, a very happy person, and that happiness comes across throughout the book.  Almost every chapter includes a ‘Real-Life Story’ about how he (or more often, one of his students) applied the suggestions in that particular chapter to successfully invest.  It seems both realistic and doable for the average person.

-Aimed at Novices: The book is not filled with jargon or designed to make real estate seem unfathomable.  All the terms used are defined when first introduced, and most also appear in the glossary at the end of the book.  It’s pretty easy to follow what Graziosi is saying, and to learn what he is trying to teach.

-Covers a Lot of Ground…: In the course of the book, you’ll get an introduction to just about every method of real estate you’ve ever encountered (and probably many you haven’t).  Further, it also covers a number of related topics, from money and time management to studying the national real estate market.  It’s hard to think of an area of real estate investing that is not at least touched upon in this book.

Cons

-…But Not Very Deeply: There’s an expression, ‘a mile wide and a foot deep,’ to describe something that attempts to cover too broad a topic and can just skim the surface.  That’s the way this book feels; by trying to cover everything about real estate investing (as well as several not quite vital subjects in part two) in a single book, the amount of space devoted to each method or other subject ends up being rather limited (even with the smaller than usual type used in the book).

-Some Odd Priorities: As mentioned above, there’s quite a bit of material included in the book that doesn’t directly relate to real estate investing (such as the chapter on overcoming your fear).  There’s also areas where the book seems to be lacking; only a single chapter is included on managing the property and filling it with tenants, and there’s nothing specific about selling your property.  A slightly different mix of material covered would make the book seem less like a self-help book and more like a real estate investment guide.

-Not Enough Caution: While there’s nothing wrong with optimism, it should be tempered with a proper amount of caution.  Graziosi makes the occasional passing comment about how something went wrong with one of his investments (such as the problems he had with a property management company one time), but a ‘Real-Life Story’ or two about how investments can go wrong, a section of each chapter telling how the methods described can go awry, or even a chapter or two on failed real estate investments would go a long way toward tempering the tone of the book.  It also wouldn’t hurt to give potential investors a better idea of what pitfalls to avoid.

Overall

Be a Real Estate Millionaire is a good introduction to investing in real estate investing, in all its many forms and possibilities.  If you are inclined to invest in real estate, this book makes a good place to get started.  Two caveats: first, it’s worth getting other books that go more in depth on the particular investment method you decide to use; a single chapter isn’t really enough to thoroughly understand the real estate method you choose to use.  Second, take the success stories and optimistic tone of the book with a grain or two of salt; you CAN, in fact, mess up while investing in real estate.  The precautions in the book will help you to avoid these problems, but well, sometimes things happen that you can’t foresee.  Follow these caveats, and Dean Graziosi should be a good guide to starting your investment career in real estate.

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It’s been a long time since I put a Ben Stein and Phil DeMuth book through the patented Amateur Financier review process, but here we are, and it’s time to put them back through the wringer.  Yes, if you write a personal finance book, sooner or later you will find that yourself in my steely gaze, and if you write more than one book, expect to find yourself a repeated target.  Which brings us right back to the book in question.

Yes, You Can Still Retire Comfortably! is another investment book from this pair, written in much the same way: heavy on statistics and explanation, light on ‘one size fits all’ advice.  It’s a guide specifically aimed at older persons approaching (or at least preparing for) retirement and attempts to beat the Baby Boomer retirement crisis.  What suggestions do they have to that generation to keep them in the black?  Well, let’s check out and see what’s under the cover:

Summary

The book is divided into three main parts.  The first one, called Yes, You Can Still Retire Comfortably! (creative, no?), starts with 21 basic rules of retirement (including things like spending less than you earn and maxing out your retirement accounts) and a decade by decade guide to your financial life, providing advice for every age bracket from teenagers up to (and beyond) retirement.  Consider it a shorthand version of Yes, You Can Get a Financial Life! (the other book I’ve read from Stein and DeMuth).

The first official chapter of the book details the coming problems with retirement planning for Baby Boomers (and Generation X, and although we aren’t mentioned, Generation Y, as well): Social Security is running out of money and company pensions have all but disappeared, taking out two of the three traditional ‘legs’ supporting retirement nearly nonexistent.  The third and final leg, personal savings, is still around; the only problem is, most people aren’t saving enough to supplement these programs, to say nothing of saving enough to supply all of their retirement needs.  The second chapter covers the importance of saving in order to save yourself.  The book recommends several ways to cut down your spending, including eating out less, buying used  cars, and owning your own home.

The second part of the book (entitled How Much to Save and How Much to Spend) attempts to go into more depth on how to get your finances in order.  The third chapter provides a ‘back of the envelope’ (in the author’s terms) guide to how much you should be saving at each stage of your life, making a number of assumptions about your life, your investments, and your eventual age at retirement.  The fourth chapter is similar, allowing you to choose from a number of options, not only those above, but things like how much you expect to get from Social Security (if anything) and from a pension (again, if anything).  Once you know how much to save, the fifth chapter covers what to use as your investment.  (Stein and DeMuth recommend index funds, of equal parts Total US Stock market, Total Foreign stock market, Total US Bond market, and TIPS.)

Now that you have your portfolio set up, it’s time to let you in on the retiree’s paradox: if your portfolio is set up properly, you will have plenty of money later in your retirement, as long as you can live on relatively small portion in the beginning (when you’re the youngest and most eager to go crazy with your retirement funds).  The last two chapters in this section address two different methods of getting income in your retirement.  The first is by setting up an income portfolio, with REITs and high-yielding dividend stocks (or appropriate funds) in place of the stock index funds mentioned above.  The second is information on how to draw down a non-dividend fund, which provides information on safe withdraw rates at different time stretches until the end of your retirement and at different margins of safety.  It finishes with an interesting discussion of how the advantages of dollar-cost averaging while you are saving for retirement end up biting your rump due to negative dollar cost averaging during retirement, and suggest market timing as a possible solution (selling stocks when they are overpriced, and bonds when they aren’t).

The third part of the book is called If Everything You Have Isn’t Enough, and covers three possible contingencies to make your money stretch further.  The first option they bring up is immediate annuities, where you turn over a lump sum of money to an investment company and receive a regular payout in return.  The second is to relocate, either to a less expensive part of the country or to a less expensive country (they recommend several, including Mexico and Costa Rica).  The third option presented is to take out a reverse mortgage to draw down the equity in your house.  All have potential, although will require significant research before you can safely choose one (or more than one) to make your savings carry you through retirement.

The final part of the book covers 25 Big Truths of Retirement Planning (yes, the authors do seem to like their lists).  Then they go over about a half dozen different retirement withdraw methods that have been suggested, subjecting them to the economic conditions of the Great Depression (and the three decades that follow), to ensure how well a one million dollar portfolio would have performed during that time frame.  Their method of using a balanced portfolio, rebalancing yearly, and using the safe withdraw numbers they provided earlier was a success in this regard, although a few other methods had some promise (and many more simply crashed and burned).

Pros

-Easy To Personalize Advice: Of all the books I’ve read about investing and retirement, this is first one that’s essentially a financial planner in book form.  If you go through the worksheets provided at various points along the way, you’ll create a reasonable financial plan for yourself, without the need to bring in an expensive planner.  It’s one of the only books I’ve read that didn’t fall back on a single number when telling people how much to save for retirement (or even worse, just telling you to ’save as much as you can’).

-Well Supported Information: The calculations and figures presented are well supported by research provided in the book, and the claims made by the authors are backed up, either by historical fact or repeated standardized testing protocols.  The level of backing provided by the authors for their arguments is rare in other books, and it helps to back their credentials as sources of information well worth giving a listen.

-Very Thorough: There aren’t many aspects of planning for retirement (or finding money in retirement if you didn’t start planning early enough) that aren’t covered in this book.  From creating a personalized investment and savings plan to drawing down your accumulated funds, there’s enough advice to help people gain a handle on their money.  From getting started investing to using your funds to provide for your retirement, there’s a wealth of information for all types of people.

Cons

-Conservative Leaning: I know I said this in my last review of a Stein/DeMuth book, but well, here it is again.  Although the conservative bias isn’t TOO noticeable after the first chapter (which details many of the ways the government has failed in the authors’ eyes, and also takes a crack at Al Gore), it does occasional tint the advice in the book.  Whether that is enough to make you skip this book is up to your individual politics, I suppose.

-Sometimes Confusing: As sometimes happens when trying to follow a rather complex train of thought, it’s possible, even likely that you’ll lose the thread of conversation or fail to completely understand the point.  Unfortunately, the book doesn’t make much effort to clarify or resolve the more complex issues it tackles, so it’s possible that you’ll end up missing something if you don’t have a decent monetary background.

-Occasionally Insulting: Besides the aforementioned conservative slant, there are some parts of the book that are simply insulting.  Negative comments about the lower class, lawyers, and the average worker (among others) are expressed, with varying levels of justification.  You might just find yourself (or someone in your family or circle of friends) being backhandedly insulted in the course of the book.

Overall

While it has a few flaws (due more to the authors’ politics than the book’s other contents), Yes, You Can Still Retire Comfortably! is an impressive store of personal finance planning knowledge.  Perhaps not the best gift for the devote leftist in your family, but a solid source of investing and saving information.  Whether you’re trying to create a saving and investment plan, checking to see that you’ll make your retirement goal, determining how fast to draw down your savings, or even figuring out how to stretch your retirement money further, this book will have some good suggestions.

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Ah, Rich Dad, Poor Dad.  I have a history with this book; if you recall from one of my first posts, it was an audiobook version of this very book that first caused me to think about personal finance, and is thus indirectly responsible for this blog.  So, I have a certain place in my heart for this book.

That said, it’s also one of the most controversial personal finance books in existence, and most readers either love it or hate it, with very few falling in between.  Kiyosaki’s high-risk, actively-trading style certainly is in high contrast to my more passive, index-based style.  So, now, more than a year and a half since I first encountered Rich Dad, Poor Dad, what’s my take on the print version of this famed investment tome?

Summary

The book starts with an introduction to the differing philosophies of Kiyosaki’s two ‘dads’, his poor biological father, and his friend’s rich dad (who might be entirely a metaphor).  The next six chapters cover several of the lessons passed on by Rich Dad while teaching Kiyosaki how to be rich.  The first lesson is that the rich don’t work for money; rather they put their money to work for them, by investing in wealth generating vehicles.  Many of the people who remain poor and middle class focus only on what they are currently earning through their work, rather than trying to lay a foundation so they no longer need to work.

The second lesson is to improve your financial literacy.  Kiyosaki focuses primarily on knowing the difference between an asset (an investment that earns you money) and a liability (something that costs you money on an ongoing basis), and knowing to buy only assets.  He goes on to note that a major reason most middle class people fall to become rich is that they purchase liabilities, which they mistake for assets.

The third lesson is to mind your business, buying assets (as Kiyosaki defines them) and using them to build your cash flow.  This short chapter gives some suggestions of investment vehicles you can use to build your investment income.  The fourth lesson covers the role of taxes and corporations in building your wealth.  It is an overly simplified view, but provides the lesson that knowing the tax laws of your location can make the difference between success or failure of an investment.

The fifth lesson maintains that the rich invent money.  He provides the story of buying a house worth $75,000 for merely $20,000 and selling it for $60,000, netting a $40,000 profit for his efforts.  Through this and other examples, he stresses that through the use of intelligent investments, it’s possible to generate high amounts of profits without putting in any of your own money.

The sixth and final lesson provided by the book is to work to learn, rather than working for money.  Kiyosaki maintains that work should be done to improve your knowledge and expand your skills, but that you shouldn’t depend on your job to supply you with enough money to meet all you needs.  The last few chapters provide advice on overcoming obstacles and getting started in your investment career.  The book ends with a story of how of one of Kiyosaki’s neighbors used investments in real estate to provide for his son’s education.

Pros

-Very Optimistic: Kiyosaki’s writing is nothing if not very hopeful and assured of success for the reader’s investment future (provided they follow his advice, of course).  If you are feeling unsure or pessimistic about your ability to successfully invest and build up your net worth, a short read through Kiyosaki’s works will generally leave you convinced that not only can you invest, but you can do so quickly and easily.

-Entertaining: While most investing and personal finance books are very dry and dull, Kiyosaki is an interesting, captivating writer.  His books are rarely dull, and most of the lessons are explained in the form of colorful anecdotes.  He teaches the point that the rich don’t work for money by explaining how his ‘rich dad’ told him to work without pay, and telling how it enabled him to come up a money-making plan all on his own.

Cons

-Overly Simplistic: Kiyosaki doesn’t provide much detail into how to carry out the methods he suggests in his book, instead focusing more on a broad way of thinking.  If you are seeking details of how to use any of the methods he methods in the course of the book, from purchasing real estate without a down payment to investing in tax lien certificates, you’ll need to look elsewhere for a how to.

-Some Incorrect Advice: In the course of his book, several of the points that Kiyosaki addresses are either incorrect, or simplified to the point that they aren’t that useful at all.  This is probably most evident in the fourth lesson, covering corporations.  He mentions how corporations can avoid taxation on their expenses, without covering the fact that corporate profits are subject to taxation at both the corporate and individual level.  (For C corporations, at least.)

-Sometimes Condescending: At times during the book, Kiyosaki takes a tone that is rather insulting.  Starting with how he wrote an entire book (and actually, created a media empire) by calling his father ‘Poor Dad’, he has a tendency to talk about people who derive their income primarily through work as failures.  He refers to workers as hamsters, calls the process of working for your income the ‘Rat Race’, and denigrates the government.  Add in the not so subtle jabs at anyone who doesn’t use his methods to generate wealth, and there’s a good chance you’ll be insulted at some point during this book.

Overall

If you’re looking for a source of inspiration during your investing life and have a rather thick skin, Rich Dad, Poor Dad could be just the thing to give you a kick in the pants and make you think more about your investments (it did for me).  That said, it’s not the only investment book you need, and frankly, you can get by without ever reading it.  Try to find it in the library (it’s a fairly popular book, so it shouldn’t be that hard to find) and give it a read before you buy; that way, you’ll have a better idea if it fits your needs and personality well.

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For the second time (but probably not the last), I’m going to be reviewing a book about money that is more humorous than straight out informative.  Unlike Dave Barry’s Money Secrets, which was an out and out humor book that was only tangentially about money, this week’s book contains plenty of good, accurate information, just written in a humorous manner.

P.J. O’Rourke’s Eat the Rich is, I hope you have guessed, not a cook book about preparing well off as snacks.  Instead, it’s a comparison of several of the different types of economies from around the world, from capitalism to socialism and back again.  Let’s take a look at some of his findings along the way.

Summary

O’Rourke opens with a explanation of his own history of interest in money (starting from his youth as a leftist, becoming the Republican Party member he is today.  Then, he covers a series of different types of economies: good capitalism (Wall Street; remember, this book was published back in 1998), bad capitalism (Albania), good socialism (Sweden), and bad socialism (Cuba).  There’s little coverage of the details of how the systems work; it’s more of how each system looks from the ground level (although, the Wall Street chapter covers several types of investments that should be familiar to long time readers of The Amateur Financier).

The sixth chapter is an ultra short course in economics (including such profound lessons as ‘You Can’t Have Everything’ and ‘Everyone Gets Paid’), followed by further tours of a variety of economic situations.  Post-communist Russia is explored as an economy desperately trying to find the best path, Tanzania is given as an example of a land with tremendous natural resources that has been unable to make anything of itself, Hong Kong is touted as making everything from nothing (and seems to meet the qualification), and Shanghai is given as an example of how to have the worst of both capitalism and socialism.

The book concludes with a rather passionate, well thought out defense of free trade, as well as freedom of all types.  O’Rourke does a very good job of defending capitalism, with all its winners and losers, from those who would attempt to limit capitalism’s growth.  In particular, he makes a very good argument against redistribution of money in the interest of fairness.

Overall

I like P.J. O’Rourke.  He makes one of the most compelling case in favor of capitalism in its purest, most unfettered form (as practiced in Hong Kong, for example, where the government provides only the basics of society and allows private enterprise to provide the rest).  If you want to read a well-reasoned, rational defense of capitalism, either to bolster your own beliefs or to challenge them,you’d be hard pressed to find a better one than what Mr. O’Rourke provides.

Plus, it’s pretty funny, to boot.

(As an Addendum: I can’t write several hundred words on P.J. O’Rourke without mentioning one of his other books, one that should shed more light on just why the US government does the things that it does. Parliament of Whores is a fantastic guide to the government and exactly our democracy works.  Even though O’Rourke is an avowed conservative, the descriptions of Washington politics he gives is surprisingly sympathetic to the trials and tribulations of politicians and bureaucrats.  Although, it’s worth noting that he concludes that all governments are a parliament of whores, and in a democracy, the whores are us…)

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There are a few books in my personal finance library that I rely on much more than the others.  Sometimes, it’s because they provide information on a relatively obscure part of the personal finance universe, one for which I have few, if any other references.  Other times, it’s because the book provides a unique and different perspective that I like to have at my disposal.  In a few rate cases, though, I keep a book close at hand because it is just so full of good information about money and investing that I don’t want to risk misplacing it.

Essential Money by Peter Sander is one of those last types of books, the ones which I’ve come back to time and time again.  I’ve found it to cover a wide range of material, and to do so quite competently.  But will you feel the same way if you read it?  Well, to find out, let’s look under the cover…

Summary

Essential Money has twenty-four chapters, covering almost every aspect of personal finance that you could want to learn about.  Although there aren’t any explicit groupings of chapters, they are arranged roughly according to subject.  The first four chapters cover the preliminaries of getting your financial situation under control, including taking a look at your personal finances, keeping track of your assets and liabilities, and learning a bit about personal finance math (this last chapter is especially full of good tables and equations to help calculate your personal financial situation).

The next few chapters cover some of the basics of budgeting and saving.  There’s a chapter on budgeting, another on how to spend your money (including six things to avoid buying), and a look at choosing the right bank for your needs.  There’s also a chapter on credit, pointing out how to get (and keep) a good credit score.

As you’d probably expect from a book attempting to cover the essentials of money, there’s quite a few chapters devoted to investing.  Stocks, bonds, and mutual funds are covered in several chapters, after a brief introduction covering the various resources available for the would-be investor.  This section finishes with chapters on real estate investments in general and owning your own home in particular.

The next few chapters are a bit of a hodgepodge; they cover a variety of important topics, but there are few connecting threads, mainly planning for the future and other longer-term goals.  There’s a chapter on risk management and insurance (with a bit on annuities thrown in for good measure), a few chapters on taxes, and a chapter on college planning.  There are a few chapters on planning for retirement and a chapter on creating an estate plan.

The book finishes on preparing for life transtions, from marriage and having children to (knock on wood) divorce and losing your job, as well as creating your financial plan.  The final chapter covers the basics of building a long term financial plan, from setting you goals (which involve both a time frame and a measurable criteria to determine when it is met) to getting professional planning help if you need it.

Pros

-A Wide Range of Topics: Look back over the summary; there’s dozens of financial issues that are included in this book.  There are few basic issues in the financial world that aren’t included somewhere in this book, and it makes a good introduction to most of them.  (The subtitle of the book is ‘Everything You Need to Manage Your Personal Finances Wisely’, after all.)

-Lots of Tables and Equations: Alright, this might only be a plus for the math nerds like me, but there are lots of mathematical calculations included in the book, covering a variety of topics.  I’ve even included cribbed a few of them for my blog when the need arose.  Add in example financial worksheets in the appendix, and you’ll have most of the tools you need to track and control your financial planning.

-Informative, Not Compulsive: Many personal finance books are written by people who want you to follow their financial plan (and only their plan).  This is not one of those books; after presenting you with the information and tools, Sander basically allows you to use them as you desire to reach your goal.  If you are a good self-starter, this might be the personal finance book for you.

Cons

-Lack of Depth: Look over the summary once more (this is the last time, I promise).  As you might surmise, with such a large number of topics, the amount of page space that can be devoted to each topic is fairly short.  If you are looking for information beyond the basics for any of the topics mentioned, you will need to find another resource.

-Missing Information: This is something of a symptom of the previous problem; with so little space and so many topics to cover, somethings are going to be missing.  However, the specific topics that aren’t covered sometimes make little sense (for example, the mutual fund chapter doesn’t cover index funds, but does include ETFs).  Getting a complete picture of all the options you have will require additional research beyond this book.

-Overwhelming Data: You might think with subjects not being covered (or at least, not covered completely), that it would be hard to get overwhelmed.  But with all the information available, as well as short length of space, Sander has a tendency to throw everything (and the kitchen sink) into some of his descriptions and lists of advice.  If you’re starting from scratch with your financial education, you might find yourself trying to remember too much, too quickly while reading this book.

Overall

As I said at the beginning, I like this book and refer to it frequently.  The best way to treat Essential Money is as a reference book, like a dictionary or encyclopedia (or a school text book), rather than something to read through cover to cover.  If you are just getting started on managing your personal finances, it makes a decent book to read for background information, although other books might be more helpful in building your own financial plan.

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