It's been 7 weeks since my previous post about finance, and I'm making good progress on reading the books from my list. So far I have finished The Millionaire Next Door, read "Part I" of The Bogleheads’ Guide to Investing, and am in the process of reading Your Money or Your Life. Though I have yet to finish these last two books, I wanted to write a little bit about what I've learned so far about money and finance.
The Millionaire Next Door
by Thomas J. Stanley, Ph.D. and William D. Danko, Ph.D.
This is the first book that I read after finishing up I Will Teach You To Be Rich
by Ramit Sethi. I chose to read this book for two reasons. The first reason was simply because it was available on Audible. The second reason was because I figured I should know where we (as a family) want to go, before trying to figure out more specific steps on how to get there. Does this make sense? It's the same as when someone goes on vacation... we generally pick our destination first, then we buy the ticket to get there.
While it's not our goal to become millionaires in the way most people think about being millionaires, I wanted to find out the secrets of the people who are millionaires, to see if I could learn something from them. This book came highly recommended on many personal finance blogs, and I could see why.
The authors of this book interviewed millionaires of the U.S., that is U.S. households with net-worths exceeding one million dollars, to see what their habits were when it came to money. This was the first time I heard about the importance of net-worth, as opposed to the amount of money one has. Basically what this means is that it's not just how much someone makes,
but how much they have to show for that income over time. The authors divided the millionaires of the U.S. into three categories: Under Accumulators of Wealth (UAW), Average Accumulators of Wealth (AAW), and Prodigious Accumulators of Wealth (PAW). While all the households in the three groups are technically considered to be millionaires, the main difference is that the UAWs tend to live like millionaires in the traditional sense (fancy cars, a big house, private education for the children, etc), but don't have enough money to keep up their lifestyle without their income for more than a few months or so. PAWs on the other hand look more like average Joes, but they have enough wealth to sustain their lifestyles for a decade or two or longer, even if they don't make another cent for the rest of their lives. The best way to become a PAW is to have not just a high income (good financial offense), but to be mindful of where one's money goes and being frugal (good financial defense).
I always knew it was important to save money, but this book really brought it home, just how much it costs to look wealthy. Most UAWs are UAWs mainly because they try to live up to the traditional idea of what it means to be rich. Before reading this book, I thought being rich meant being able to send our kids to a private school, and living in a big house in a nice neighborhood. Now I know that just because we have the money to do so, doing things that "wealthy" people do, is not necessarily the wisest of ideas. Having a low level of consumerism, being frugal, and not trying to look rich are all things that PAWs do. PAWs in general spend much less on any given item, than UAWs, be it a car or a watch or a nice suit. They also know exactly how much they spend for major categories, like food or clothing, in a year, while UAWs generally have no idea. Most PAWs are financially literate, while UAWs hire financial consultants. And the list goes on.
What I've learned from this book:
Being rich means having enough money to support ourselves and our lifestyle for years, even if we have no jobs. The longer we can do this, the richer we are.
The Bogleheads’ Guide to Investing
by Taylor Larimore, Mel Lindauer, Michael LeBoeuf, and John C. Bogle
Now that I've learned about what it meant to be financially independent, I wanted to learn about how to get there. We've been fortunate to have pretty good financial offense with my job as an ALT, and we've been saving up ever since we moved to Japan, but I didn't want to squander away our savings, or let it lose value by letting our money take a vacation in a saving account. I also became a bit nervous about my own retirement fund, which is currently nonexistent. I wanted to put our savings to a good and productive use, to get us closer to being financially independent.
I bought The Bogleheads’ Guide to Investing for my Nook, because currently there isn't an audio version for it, but it was labeled as THE book to read for anyone who wanted to be financially independent. I don't have a lot of actual reading time, so I didn't expect to read it as fast as I did, but it's been a good book so far. True, I've only read PART I (which is about 2/3 of the book), but that's because PART II deals with keeping up with the strategies that were suggested back in PART I, which I have not yet implemented. This is also the book where I learned about the steps needed before we start investing our money. These steps are:
- Having no debts (check)
- Having at least 6 months worth of living expenses saved in the bank (in progress, but more or less check)
- Maxed out contributions to 401K/Roth IRA (as we're living abroad, we can't really contribute)
- Still have money left over.
Bogleheads follow the advice of Jack Bogle, founder of Vanguard, and
believe in slow and steady investing, while steering clear of
get-rich-quick schemes. This book is great because it explains all the different ways someone
could invest their money with short and precise explanations, including pros and cons. The advice in this book is concrete and no-nonsense. One of the most interesting things that I've read about were the different ways we can save for our child(ren)'s college education. So far the only college fund I've heard of was the 529 Qualified Tuition Plan (QTP) that most people know about. But have you heard of the Coverdell Education Savings Account (ESA)? It's pretty amazing, with the only drawback of having a low contribution limit per year, at $2000. However, who said we can't have both? Actually, that's one of the advices of the authors: invest in the ESA first to the max, then if we still have money left over for college education, then contribute to a 529.
What I've learned from this book:
Besides the meaning of bonds, mutual funds, and other investing terms, the biggest lesson I took away from this book was slow and steady wins the race.
Your Money or Your Life
by Vicki Robin, Joe Dominguez, and Monique Tilford
By the time I finished PART I of The Bogleheads’ Guide to Investing, it became clear to me that while it's good to know specific steps about investing, I needed to learn more about what money was, and what part it took in our lives, so that I can handle it better. I wanted to learn more about defense strategies when it came to our finance. So I bought Your Money or Your Life on my Nook, again because there isn't an audio version available currently.
This book is not a personal finance book in the traditional sense. It's much more than that. It's more like a philosophy. It gives a completely different meaning to money, a new definition, if you like. In some places the book feels a little new age-y, but it definitely makes you think. The book doesn't talk about how to invest money, instead it shows the importance of living simply, being frugal, and questions every purchase, as well as the meaning of work itself. It's a journey to find out what is "enough" and to figure out how to get there. Having less than "enough" is the place where a person's needs are not yet met, while going beyond "enough" is unnecessary consumption, leading to feeling always unsatisfied and perpetually poor, no matter what the person possesses or how much one earns.
I'm only up to Step 7 out of the 9, but already I asked my husband to give this book a read. I'm hoping that during the time between Christmas and New Years we can talk about the steps this book presents, and implement them in the coming year. Some of the steps are not new to me, some I've even tried in the past. But now, I'd like to give it a try from Step 1 all the way to 9, and make it the first big step toward financial intelligence being second nature.
What I've learned from this book:
Being financially intelligent and independent doesn't only mean investing in the right things. It starts in the home, by knowing exactly what we do for- and with our money, so that we are as close to "enough" as we can possibly be, by living simply and frugally with consciousness.
*****
Overall, I learned that there's is a lot more to being financially intelligent and independent than I originally thought. While in my first financial post the books I chose focused primarily on how to invest money, now I realize that investing is only a small part of the big picture. So I'm making a new list of books to read, in the order I'm hoping to read them. I also included in parenthesis where I'm going to get the book, and the category I sorted the book into. Enjoy!
- America’s Cheapest Family by Steve and Annette Economides (from Audible; simple living)
I definitely think my next book should be about simple living, and the reason this book is on the top of my list out the four simple living books, is because it's finally available on Audible. - Born to Buy by Juliet Schor (book from Amazon; consumerism)
This book was pretty hard to buy in Japan. I can't wait to read it though! It's about how consumerism affects children. The book is based on tons of research, and came highly recommended. - The Complete Tightwad Gazette by Amy Daczyzyn (book from Amazon; simple living)
This book is the bible of simple living. Originally started as a newsletter, now it's a gigantic book full of tips and tricks on how to live frugally. - The Four Pillars of Investing: Lessons for Building a Winning Portfolio by William Bernstein (from Audible; investing)
As I understand, if The Bogleheads’ Guide to Investing is the beginner course in investing, this is the intermediate course. - Smart Couples Finish Rich by David Bach (book from Amazon; personal finance)
One of the personal finance bloggers said that everyone should read one book, and only one, from David Bach. This book deals with the only thing that I haven't came across yet: dealing with finance as a couple. - Miserly Moms by Jonni McCoy (ebook on Nook; simple living)
This is another book about simple living, which focuses on stay-at-home moms. Since I'm hoping to stay at home after my job in Japan is done, I thought it would be appropriate to read. My hope is that even if it doesn't contain any new information after reading the other simple living books on the list, it puts it a new perspective for me. - Enough by John C. Bogle (from Audible; personal finance)
A book about the elusive "enough" from the founder of Vanguard. Need I say more? - The Only Investment Guide You’ll Ever Need by Andrew Tobias (ebook on Nook; investing)
From what I understand, this book could be considered my advanced level course in personal finance. - The Little Book of Common Sense Investing by John C. Bogle (from Audible; investing)
Just another perspective on the same topic, again highly recommended by people who are into personal finance. - The Joy of Simple Living by Jeff Davidson (book from Amazon; simple living)
I'm not sure if I'll need to read this by the time I get to it, but it could be a good way to refresh the information I've read so far. - The Power of Passive Investing: More Wealth with Less Work by Richard A. Ferri (from Audible)
- Lifecycle Investing: A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio by Ian Ayres and Barry Nalebuff (from Audible)
These last two books were books I found on Audible that seemed interesting, but have not been mentioned in other personal finance blogs. I'll decide whether or not I'll (need to) read them once I get to them.
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