A Journey To Financial Dependence

Wait a minute, you say, don’t you mean financial independence?  So much of what is done in the personal finance world is geared toward taking a person to that big goal of “financial independence.”  But no, you read that correctly, this is a book about financial dependence.  It makes perfect sense, actually, if you stop to think about it.  In a world of such uncertainty amidst wild stock market swings, failing banks, and unscrupulous CEOs, why strive to rely on yourself when you can achieve dependence on the one truly solid foundation – God Himself?

This small book has a interesting layout.  It is mostly a devotional book.  Various authors have contributed short writings (1-2 pages) that are to be read as independent devotions.  Interwoven among the entries, though, is a fictionalized and modernized retelling of the “Rich Young Ruler” story from the Luke 18 of the Bible.  The devotions are actually presented as journal entries that the main character in  the story is reading.  Thus you read a few short chapters of the story and then there are a number of journal entries before the next few chapters.

I like the format actually; it works for me.  I haven’t finished reading the book but I do find myself interested in its conclusion.  The main meat of the book, the devotions, are written first person by each author and include some real world stories that I find inspirational.  The main focus, of course, is dependence on God so there are a number of anecdotes about how God provided for needs in just the right amount at just the right time – I love reading those accounts!

Building Blocks of Faith

Each devotional includes a short prayer and a blurb titled Building Blocks of Faith.  I’ve found a few of those to be quite compelling as well.  The most interesting to me is “Our lack of money is just as much an answer from God as His abundance.”  Another thought-provoking one is “It’s not a matter of how much you posses, but how much your possessions matter to you.”  I found those to be two good thoughts to ponder.

To summarize, here is some information from the book’s website that I found very interesting:

The story of the rich young ruler was the perfect example of how God asks us to allow Him control over all we have. Faith and FINANCES: In God We Trust – A Journey of Financial Dependence isn’t your typical wealth-management book. It’s NOT how to build your 401K. Rather it was meant to be an example of trust—of knowing how to trust God with for and with your daily provision. God seemed to saying, “If you won’t trust me with your finances how will you ever trust me with your life?”

This was the seed for Faith and FINANCES: In God We Trust. The book is designed to allow churches to minister to congregations and encourage them to make God their financial advisor.
God instructed us, not to worry and yet when times are tight, we recoil, retreat and hide our wealth from God and each other. Financial dependence on God releases us from the burden of worry.

Little faith is hoping that God will do what He says.
Big faith is believing that God will do what He says.

But great faith, is knowing God has already done what He said He’d do.

We invite you to learn more about Faith and Finances during April and May while they tour cyberspace. To find other tour stops, visit http://bookpromotionservices.com/2010/03/02/faith-finances/ . For other details about the book or to get more information about Christian Devotions visit http://www.faithandfinances.us/. The book is for sale at: http://www.amazon.com/gp/product/0982206542

That’s good stuff right there – the difference between little, big, and great faith.  Remember, it takes so much to achieve “financial independence” which is such a wary foothold anyway.  So many different things in our world can wipe out even great wealth in the blink of an eye.  Instead, focus on the solid foundation that is God – besides He owns everything anyway.  This is a lesson I certainly struggle with and I have been trying to move my focus from accumulating all that I can to create my own security to relying on God for His peace and security.

Related posts:

1. BFN Book Review: The Automatic Millionaire A Powerful One-Step Plan to Live and Finish Rich By...
2. BFN Book Review: The Treasure Principle Unlocking the Secret of Joyful Giving By Randy Alcorn BFN...
3. Weekly Bible Verse – Honoring God with Your Wealth Honor the LORD with your wealth, with the firstfruits of...

Related posts brought to you by Yet Another Related Posts Plugin.

By Randy Alcorn

BFN Book Reviews

Again, it is has been quite a while since I last wrote a BFN book review.  And that’s too bad because I do enjoy reading books and I have actually read a number of titles (well, not just the titles but all the pages too) over the past few months.  Anyway, I was poking around my good friend Brian’s office a few weeks ago and saw a book on his shelf that I’ve been meaning to read.  So, I snatched it…no, not really, I was granted permission to borrow The Treasure Principle…and I did borrow it and I did read it.

What is this book about?

This book is not your typical personal finance book.  You won’t find a step-by-step guide to get out of debt or save for retirement or any such thing.  Rather, the purpose of the book is much more grandiose.  This volume seeks to change the focus of basically your entire life.  The back cover trumpets “Once you discover this secret, life will never look the same.”  That secret revolves around giving and the joy that can be associated with it.

Who is the author?

Randy Alcorn has written a number of books, both fiction and non-fiction alike.  Besides writing a few novels, his non-fiction works cover various topics including Heaven and stewardship.  In fact, you have most likely heard of another one of his books, Money, Possessions, and Eternity.  He is also the founder and director of Eternal Perspective Ministries, whose two main goals are to teach the principles of God’s Word, emphasizing an eternal viewpoint; and to reach the needy in Christ’s name.

What are the best parts of the book?

This is a great little book – I have a lot of good to say about it.  First, it is a small book and I found it to be well written.  Those two combine to make it a very quick and enjoyable read.  The principles discussed within are profound and thought provoking as well thus making it a worthwhile read as well.

The author discloses his main Treasure Principle and then backs it up with six keys to the treasure principle. Allow me to share them with you and touch briefly on each one.

Alcorn mentions that Jesus devoted 15% of His teaching in the Bible to money and possessions – more than heaven and hell combined!  It therefore must be very important; in fact, it is central to our spiritual lives.  Perhaps you have seen this quote from Jim Elliot: “He is no fool who gives what he cannot keep to gain what he cannot lose.”  This sets the stage for the author to disclose his Treasure Principle:

You can’t take it with you – but you can send it on ahead

Treasure Principle Key #1: God owns everything. I’m his money manager

Consider these verses in support of key #1:  The earth is the LORD’s, and everything in it, the world, and all who live in it (Psalm 24:1).  “The silver is mine and the gold is mine,” declares the LORD Almighty (Haggai 2:8).  Remember the LORD your God, for it is He who gives you the ability to produce wealth (Deuteronomy 8:18).

Treasure Principle Key #2: My heart always goes where I put God’s money.

“Show me your checkbook, your VISA statement, and your receipts, and I’ll show you where your heart is.”  The author suggests that, for instance, if you want to have more of a heart for spiritual things, say international missions, then allocate more of your money, maybe most of your money, to missions and your heart and your interest will naturally follow.

Treasure Principle Key #3: Heaven, not earth, is my home.

Where we choose to store our treasures shows where our hearts are.   Are you storing them here on earth or up in heaven for your arrival there?  In the book there is an hypothetical example of a person who lives in France but is visiting the US for three months.  At the end of the three months, he will return home to France but will be unable to take anything back with him.  Should he waste his time and resources filling his US dwelling with expensive furniture and such only to leave it all behind when he returns to France? Or should he send most of his money back to France?  Remember, he who dies with the most toys, still dies.  We will eventually leave this earth and when we do, everything we own here on earth will remain here on earth.

Treasure Principle Key #4: I should live not for the dot but for the line.

This key requires a bit of explanation.  Consider the image to left.  The dot represents your very brief life here on earth.  The line, in contrast, represents your eternal life in heaven.  Focus not on the short time you’ll spend here on earth but the very, very, very long time you’ll spend in eternity.

Treasure Principle Key #5: Giving is the only antidote to materialism.

The author contends that giving shifts our focus from us and from our stuff to God and also affirms His Lordship.  Consider this quote from C.S. Lewis:

We are halfhearted creatures, fooling about with drink and sex and ambition when infinite joy is offered us, like an ignorant child who wants to go on making mud pies in a slum because he cannot imagine what is meant by the offer of a holiday at sea.  We are far too easily pleased.

We settle for a life of unsatisfying material possessions instead of focusing on heaven.  The remedy for this is to shift that focus and the means to accomplish it is through giving.

Treasure Principle Key #6: God prospers not to raise my standard of living, but to raise my standard of giving.

The author prompts you to consider why God has given us so much in our modern day society.  Even those in the middle income levels in the US are drastically more wealthy than most people in history.  Remember Jesus’ words:

Give, and it will be given to you.  A good measure, pressed down, shaken together and running over, will be poured into your lap.  For with the measure you use, it will be measured to you.”  Luke 6:38

Alcorn states, “The more you give, the more comes back to you, because God is the greatest giver in the universe, and he won’t let you outgive Him, Go ahead and try.  See what happens.”  Have you ever asked God why He has given you so much?  Consider this:

Now he who supplies seed to the sower and bread for food will also supply and increase your store of seed and will enlarge the harvest of your righteousness.  You will be made rich in every way so that you can be generous on every occasion.  2 Corinthians 9:10-11 (emphasis mine).

There is a lot more to this book than just the Treasure Principle and its six supporting keys. For instance, Alcorn discusses a number of other corollary topics such as:

• Should you give now or save up to give more later?
• What about leaving a large inheritance to your children?
• Five minutes after you die, what will you wish you would have given away while you could have?

31 Radical, Liberating Questions to Ask God

Alcorn completes the book by presenting 31 questions to ask God surrounding your giving.  These are some serious, thought-provoking, soul-searching questions here.  Though the book is small and a quick read overall, you will spend a great deal of time on this last section if you wholeheartedly tackle each question.  Here is but a taste of them:

6. Lord, I’m wondering: Why have You entrusted me with greater financial blessings that I once had? I guess I’ve assumed You’ve done it to raise my standard of living.  But now I’m asking “Is it instead to raise my standard of giving?” …

8. Lord, I’ve sometimes wondered why You’re not blessing me more financially.  Could it be that I’ve been spending money on myself first, rather than giving You the firstfruits of what You’ve provided?

What is not-so-good about the book?

There is not much to complain about in this book, actually.  It’s well written, thought-provoking, a quick and enjoyable read.  It even has the 31 questions to go through as an exercise if you like books with steps to accomplish.  I guess the worst thing is that it might challenge you to change the way you live…and most people aren’t comfortable considering such changes!

So what is my recommendation?

This is a great little book and definitely worth a read.  In fact, I’m putting it into my virtual bookshelf of must-read books.  Remember, this is not a step by step how-to book.  This book might be one that you want to purchase and keep handy so you can periodically pick it up.  If you feel like you are getting off track, you can read a bit to remind yourself about the treasure principle.

The book is a lot more than just the keys I listed above.  There are many worthwhile anecdotes, quotes, and explanations stuffed into its small binding.  I’ve mentioned multiple times that it is a small book but there is so much in here.  I’ve spent more than 1500 words describing it and have barely scratched the surface of its supporting material.  I think the best way to put it is that the book is “dense.”  Read it!

Want to borrow this book? Search your local library

Want your own copy? Buy this book now at Amazon.com

Check out the books I’ve chosen for my virtual bookshelf

Related posts:

1. BFN Book Review: The Automatic Millionaire A Powerful One-Step Plan to Live and Finish Rich By...
2. Weekly Bible Verse – Giving off the Top Honor the LORD with your possessions, And with the firstfruits...
3. Weekly Bible Verse – Little with God or Much Without? Better a little with the fear of the LORD than...

Related posts brought to you by Yet Another Related Posts Plugin.

By David Bach

BFN Book Reviews

My, my, my, I have not done a BFN book review in a long, long time.  The main reason is that I have not finished a PF book in quite a while, actually.  I’ve started some, but have not been able to make it through any (busy, busy, busy). Well, I was poking around at the library the other day and picked up one I’ve been meaning to read for a while, David Bach’s The Automatic Millionaire, and it didn’t take me very long to make it through this book.

What is this book about?

This book is a general personal finance book.  It pretty much covers the basic PF topics you’d expect to see in an overview book and it doesn’t go into tremendous detail on them.  For instance, there is no detailed explanation of mutual funds or asset allocation or anything like that.  But its power is in its simple message – figure out how you want to save, invest, pay down debt, and then automate all of it.  Sure it’s pretty simple, but it is also powerful and effective.

Who is the author?

David Bach is a financial planner who has written a number of books and hosts seminars under the “Finish Rich” flagship.  His other books include Smart Women Finish Rich, Smart Couples Finish Rich, and The Finish Rich Workbook.

What are the best parts of the book?

As full disclosure, I must admit up front that this is my kind of book!  The main one that Bach teaches is automating as much as possible in your financial life.  I wholeheartedly agree with this concept and I believe that I am in much better financial shape today because I automated some of my financial strategy years ago.

Besides automation, another area where the author will grab some proponents is that he hates budgets.  If you hate budgets, then this is the book and the plan for you (and if you hate budgets and love automation, you are floating on cloud 9 when reading this book).  Unlike Dave Ramsey, Bach claims that budgets don’t work because they are unnatural and no fun.  Instead, he proposes avoiding budgets by basically automating as much of your financial plan as possible.

Another foundational concept the author presents is to pay yourself first. This, again, is critical to achieving your financial goals.  If you wait until the end of the month or year to save, there won’t be anything left to save.  Instead, you must do your saving at the beginning of the month before taking out any money for bills and living expenses.  And after you decide how much to pay yourself first, then you automate this process.

If you are asking, “David, where do I find this money with which to pay myself first?” well, he has an answer for you there.  He uses the term “The Latte Factor” to explain those things that, though they are small expenses, add up over time if we do them often enough.  He challenges his readers to track every penny of spending for a few days to expose their Latte Factor, whatever it may be.  He then proposes that they start by cutting down on these expenses and saving some of that money instead.

Finally, and what I found most interesting in this book, is that the author devotes a chapter to automated giving.  Again, I do feel that tithing is of critical importance to a financial plan (and I automate my giving as well).  He is very careful not to offend anyone with this chapter but he does discuss the importance of giving and mentions how those who give money away tend to have more money flow back to them.

Finally, Bach does a great job of encapsulating why we should be taking care of our finances and planning for our futures (hint, it’s not just to get rich and buy a huge mansion or something):

Becoming an Automatic Millionaire is not simply about accumulating wealth.  It’s also about relieving stress and worries about the future-about putting yourself in a place that enables you to enjoy life now as well as  in the future.  In other words, having an automatic plan should not only change your future, it should also change your present.

What is not-so-good about the book?

As I mentioned, this book is not a complete detailed overview of everything financial.  On second thought, maybe that is actually a good thing.  If you are looking for detailed investing strategies or asset allocations, then this book will not contain what you are looking for.  Well, that’s pretty much all I’ve got – there’s not much to complain about with this book.

So what is my recommendation?

I definitely recommend this book for a read – especially if you don’t like budgets and you like automation.  It is a quick read, the author keeps your interest, and he provides very practical advice.  In fact, he goes so far as to include numerous phone numbers and websites for specific companies to make it oh so easy to take the next step and get started.

In fact, this book actually inspired me to take action.  As a result of reading this book, I increased the contribution into my 401k.  I also thought about increasing my wife’s contribution and accelerating our mortgage, but haven’t pulled the trigger on those yet.  That notwithstanding, what is more important than a book that actually causes you to take action?  So grab a copy of the book or check it out from your local library (that’s what I did), but do read it.

Want to borrow this book? Search your local library

Want your own copy? Buy this book now at Amazon.com

Check out the books I’ve chosen for my virtual bookshelf

Related posts:

1. BFN Advance Book Review: Faith & Finances – In God We Trust If you noticed my “Currently Reading” widget recently, you might...
2. BFN Book Review: The Treasure Principle Unlocking the Secret of Joyful Giving By Randy Alcorn BFN...
3. Financial Peace University Lesson 3 – Cash Flow Planning The Nuts and Bolts of Budgeting You have to be...

Related posts brought to you by Yet Another Related Posts Plugin.

I recently received a review copy of the book Outliers by Malcolm Gladwell.  To be honest, I had not previously heard of this author but the book sounded quite intriguing.  The subtitle of the book is "The Story of Success" (c’mon, you agree that piques your interest, right?)

I finally started reading it (I have quite a list of books to read and am only slowly working my way through them) and it has absolutely not disappointed.  In fact, it is quite enlightening and I have already found myself discussing it with friends on numerous occasions.

How can you not like a book that starts off discussing Canadian junior hockey teams and quickly moves to software tycoons, the Beatles, geniuses, lawyers, and immigrants making it big in the early-American garment industry.  And that’s only in the first part of the book – Opportunity.  The second part, Legacy, takes off from Appalachia…and that’s as far as I’ve gotten.

The Opportunity section of the book is chock full of interesting information on how to truly view success – specifically the necessary ingredients to achieve it.  Gladwell posits that there are numerous other factors that lead to success besides the obvious ones that we so often hear bandied about – being smart and working hard.  Remember, this is just a preview so here are a few questions to whet your appetite:

Do you notice anything interesting about the birth years of these US computer moguls?

• Bill Gates – 1955
• Paul Allen – 1953
• Steve Ballmer – 1956
• Steve Jobs – 1955
• Eric Schmidt (Novell then Google) – 1955
• Bill Joy (Sun Microsystems) – 1954
• Scott McNealy (Sun) – 1954
• Vinod Khosla (Sun) – 1955
• Andy Bechtolsheim (Sun) – 1955

Why were 11 of the 22 members of the 2007 Czech junior national hockey team born during January, February, and March while only two on the same team were born in October, November, and December?

I am excited to finish this book and I’m hoping that there will be some sort of takeaway that will help me apply the knowledge the author shares in this book.  It is all very interesting, but I am wondering whether it will turn out to be practical or just informational.  To be fair, so far I have found two extremely useful bits of information regarding education and preparing your children for success (I will share those later as well).

When I finish reading the book, I will do a full review of it.  In fact, I may have to do more than one.  At the very least, some of the topics covered by Gladwell will certainly spark a few blog posts of their own!  I am enjoying this book and am very excited to pre-announce that I will do a giveaway of the book when I post the complete review of it.  So, please stay tuned for that as it will be the very first giveaway in the short history of Borrow From None.

Related posts:

1. BFN Book Review: The Automatic Millionaire A Powerful One-Step Plan to Live and Finish Rich By...
2. Are you Ready for Black Friday? I’m not sure how this happened but next week is...

Related posts brought to you by Yet Another Related Posts Plugin.

By Howard Dayton

BFN Book Reviews

Well, it has been quite a while since I did a book review here at BFN.  It’s a habit that I’d like to get back into – so why not start again today?  I provide a brief overview of the book and the author, touch on the good and bad in the book, and finally, give you my personal recommendation for whether you should borrow the book, buy the book, or neither.

What is this book about?

This book is a pretty small book but it basically tries to cover everything about money.  Specifically, to clarify, it tries to cover most of what the Bible says about finances.  It’s a pretty ambitious goal, especially given the size of the book (it is 175 pages, but it’s skinny).  It actually does cover quite a bit of the ground it mentions on the cover.  In fact, it touches on other subjects as well.  Of course, it can’t go into much detail on each portion.  Overall, however, the author is quite successful in jamming an extraordinary amount of biblical guidance into this skinny little book.

Who is the author?

Howard Dayton is a co-founder of Crown Financial Ministries with Larry Burkett.  The mission of Crown Financial Ministries is:

Equipping people worldwide to learn, apply, and teach God’s financial principles so they may know Christ more intimately, be free to serve Him, and help fund the Great Commission.

Before founding Crown Financial Ministries, he founded Crown Ministries back in 1985.  Therefore, Dayton has been studying Biblical financial principles for quite some time and attempting to teach them to others through the Crown bible studies and events.

What are the best parts of the book?

As I mentioned above, this book undertakes a very ambitious goal.  I feel that it does, for the most part, meet that goal.  This is a great introduction of  God’s teachings on money, possessions, and prosperity.  The book starts off by providing these statistics from the Bible:

• 16 of the 38 parables regard how to handle money and possessions
• There are approximately 500 verses about Faith
• There are approximately 500 verses about Prayer
• There are over 2350 verses about money & possessions

So, the author points out that the proper attitude and treatment of money and possessions is quite important.  Why is there such an emphasis on money and possessions in the Bible, you ask?  Dayton offers these three answers:

1. How we handle money affects our relationship with the Lord (see Luke 16:11 )
2. Possessions compete with the Lord for our focus and attention (see Matt 6:24 )
3. Much of life as we currently live it revolves around the use of money

Dayton then spends the remainder of the book going through the various aspects of finances that touch us on a daily basis.  For each section, he discusses the main points and provides numerous Bible references.  Personally, I feel that the references are the most valuable part of the book.  For the topics covered, this book provides a great starting point for personal Bible study.

The book really does cover a lot of ground, so I can’t possible summarize even a fraction of it in this review.  Allow me to provide you with a glimpse of some of the interesting things I learned while reading it.

Giving

The author touches on the importance of giving and mentions that there are more Bible verses on giving than on any other individual financial topic.  He points out that your attitude about giving is of crucial importance.  He does not provide a set percentage that you should give, however, as he leaves that as a decision between you and God.

Working

Dayton also brings to the reader’s attention that work was designed before the fall of Adam and Eve in the Garden of Eden (Genesis 2:15 ).  So, having to do work is not a result of sin, work just got a lot harder because of it.

Investing

The author advocates being a "steady plodder" when it comes to your investing strategy.  He uses the quote "saving is making provision for tomorrow while debt is presumption upon tomorrow."  He lays out these three important investment goals:

1. Providing for your family
2. Becoming financially free to serve the Lord
3. Operating your business

He also stresses that it is not an acceptable investment goal to save and invest for the sole purpose of becoming very wealthy (1 Tim 6:9-11 ).  His counsel is to determine the maximum amount of money you want to save and when you reach that number, stop saving and redirect the money you were investing to helping other people (kinda like those commercials where the people carry around those big orange numbers).

At the end of the book, there is a small section with some related questions (basically a FAQ), here are two questions and summarized answers that I thought were interesting:

How does the Bible define financial success?

It is achieved by being a faithful steward – not by how much wealth you have accumulated.

Should Christians give to secular charities?

There are many charities competing for our dollars and scripture does not specifically address whether we are only to give to Christian charities.  The author and his wife have decided that, with some certain exceptions, they themselves will only give to Christian charities.  This is mainly because, for the most part, everyone gives to secular charities but only Christians give to Christian charities.

What is not-so-good about the book?

This book covers a tremendous amount of information in a relatively short amount of time (well, I guess it depends on how fast you read).  As you might imagine, there are not enough pages to go into terrible detail on each topic.  As a result, your appetite is whetted but you will need to turn elsewhere if you want an exhaustive treatment on any specific topic.

Also, it is not nearly as practical or "step-by-step" as some other financial books.  For instance, Dayton spends about half a page on his four step process for getting your finances in order.  Dave Ramsey, in contrast, has an entire book on the subject .  I feel that this book is not really trying to be that, though.  The point of this book is to get you thinking about Biblical standards for money.  It is to give you a primer on the main points, to maybe challenge some of the (wrong) ideas you may have about money, and to pique your interest to delve into the subject more.  And in that scope, I think it performs well.

So what is my recommendation?

I think this is a good reference book to own.  It has a ton of information crammed into it.  In fact, it’s going onto BFN’s virtual bookshelf .  I think it is a valuable read to get started on your path to understanding what God teaches about money.  There are copious amounts of Bible references throughout, so it is helpful to open it up to a specific topic to see how the author summarizes the topic and start searching the Bible references provided.

As I mentioned, it’s not a practical step-by-step guide to getting out of debt or whatever.  If that is what you need in your life right now, this is not the book for you.  One option is to find a Crown Financial Ministries Bible study in your area – that’s actually where I received this book (you get it as part of the material for the class)  – as it will provide that step-by-step process you’re looking for.

I would say that if you can do the Bible study or pick up a copy of this book at a good price, then it’s a good book to have and refer back to often.

Want to borrow this book? Search your local library

Want your own copy? Buy this book now at Amazon.com

Check out the other books I’ve chosen for my virtual bookshelf

Related posts:

1. BFN Book Review: The Automatic Millionaire A Powerful One-Step Plan to Live and Finish Rich By...

Related posts brought to you by Yet Another Related Posts Plugin.

This is part 2 of a multi-post book review of the excellent book, The Bogleheads’ Guide to Investing .  If you haven’t already, please check out part 1 now .

What else is good about the book?

Consider taxes

When we left off yesterday, we had just finished talking about how costs were critically important when choosing mutual funds.  If you are investing in a taxable account, it is most likely that the biggest expenses you will face are taxes.  It is therefore quite important to consider taxes when planning your portfolio.  The most important suggestion the authors have is to ensure that your least tax efficient funds are in your tax-advantaged accounts.  If you don’t have the luxury of any tax-advantaged accounts, make sure that you are investing in tax-friendly mutual funds.

Why would I want to invest in index funds to only get the market average?

Of course it makes perfect sense that you should strive to get better returns on your investments than the market in general, as provided by index funds.  This is one case, however, where common sense is just not correct.  In yesterday’s post I listed the reasons the authors give for investing in index funds.  Another item the authors would like you to consider is that it is extremely difficult to pick the best mutual funds in advance.

Multiple studies are referenced by the authors showing that the "hot" funds for one-year, five-year, or ten-year periods are very unlikely to be the "hot" funds in the subsequent period.  An example presented is from a Vanguard study where they looked at the top 20 US equity funds for the ten-year period ending in 1993.  Over the next ten-year period, only one of those top 20 funds were even in the top 100!  Remember, you need to pick a fund before it experiences its great growth.  It does you no good to have last year’s hot fund if it is performing below average this year.

The authors wrap up Part I of the book with chapters on investing for college, managing a windfall, and a discussion on whether or not you need to hire a financial advisor to manage your money for you.

The importance of rebalancing

Part II of the book starts off with a discussion on rebalancing.  The authors present two basic rebalancing strategies:

• Time-based – Rebalance after a certain time period.  Most people do this quarterly or yearly.  Of note is a Morningstar study mentioned in the book that showed people who rebalance every 18 months get the same benefit and lower costs than those who do it more frequently.
• Expansion bands – Rebalance when your original asset allocation gets skewed by more than a predetermined percentage (say 5%).

Behavioral Economics

There was some fantastic information in this chapter about why smart people make bad investment decisions.  I will list the items presented by the authors here but I can’t do into more detail today.  I am planning to do a number of posts on these topics, however, as I find them very interesting and important to understand.

• Greed & Fear
• Ego & Overconfidence
• Loss aversion -a loss if felt more than an equal gain
• Paralysis by analysis – spending too much time analyzing a situation and never acting
• The endowment effect – people tend to confuse familiar with safe and overvalue what they already know
• Following the herd
• Mental accounting – treating money differently based on where it comes from – i.e., viewing your tax return as a windfall
• Anchoring – clinging to an old belief or comfortable opinion even if it is wrong
• Financial negligence

The final three chapters stray off of strict investment advice and cover the topics of ensuring you outlive your money, protecting yourself through insurance coverage, and passing on your estate when you die.  These contain some useful information and act to round out the book.  Again, this book is certainly more than a strictly investment advice book.  Though it does not go into terrible detail on these other topics, there is  some good "bullet-point" level information in them.

What is not-so-good about the book?

Overall, I really found this to be a useful book but there were some issues with it.  First, if you are not into index funds, you are going to have a hard time reading this book.  The authors are very pro-index funds and that philosophy is reflected throughout the book.  Of course, if that is you, maybe this is a good book for you to read to examine what the authors claim about their strategy and give it a fair look.

Though this book is not strictly about Vanguard, there are references to Vanguard littered throughout it.  They do mention other index funds, but they clearly love Vanguard.  Of course, what can you expect from a book with this title?

Finally, I didn’t really get the organization of the book.  The chapters do not flow logically for me.  I know that this is a minor point (and it probably says more about the way my brain works then the authors’ organizational capability) but it can give the feel that the book is disjointed and somewhat scatter-brained.

So what is my recommendation?

I really think this is a useful book for someone who wants to learn the basics of investing.  There is a lot of educational information in here about the stock market and especially index funds. Of course, the authors are espousing a certain investment philosophy and I just so happen to agree with that philosophy.  Actually, I wasn’t totally sold on the low-cost index fund thing when I first started reading this book.  It did a good job of explaining some of the issues that I was confused about in a way that made the index fund strategy more understandable and plausible.

After reading through the book and my notes, I have decided to put this book onto my virtual bookshelf.  It really does present a great overview of the low cost mutual fund strategy of investing.  I feel it is a valuable read for that reason. I highly recommend that you read this book as I think you might learn a lot from it.  Whether you buy or borrow it does not matter, though at over 300 pages, you might have to renew it.  For full disclosure purposes, I borrowed it from my local library (twice).

Want to borrow this book? Search your local library

Want your own copy? Buy this book now at Amazon.com

Check out the other books currently on my virtual bookshelf

Related posts:

1. BFN Book Review: The Automatic Millionaire A Powerful One-Step Plan to Live and Finish Rich By...

Related posts brought to you by Yet Another Related Posts Plugin.

BFN Book Reviews

Here at BFN, I have been periodically reviewing personal finance books. In each review, I provide a brief overview of the book and the author(s), touch on the good and bad in the book, and give you my personal recommendation for whether you should borrow the book, buy the book, or neither. This is a fairly thick book with a lot of useful information so I am not going to be able to cover it in a single post. This will be Part 1 and Part 2 will follow soon after.

What is this book about?

Don’t be fooled by the title, though this is a book about investing, it contains much more than just investment advice. The authors do spend the bulk of their time discussing and educating the reader on the various aspects of investing. However, they also touch on other related topics such as financial lifestyle, insurance, estate planning, etc.

Who are the authors?

Not only are the authors "Bogleheads," but Taylor Larimore is actually the founder of the Bogleheads. Co-authors Mel Lindauer and Michael LeBoeuf also spend a lot of time reading and responding to posts on the Bogleheads forum hosted at bogleheads.org . At this point, you might be asking, "What is a Boglehead? " (good question!) A Boglehead is a person who shares the investment philoshophy espoused by John Bogle, the founder of The Vanguard Group. In a nutshell, that philosophy is based on investing in a diversified manner with very low cost investments. (yes, that picture on the cover is John Bogle’s head)

What are the best parts of the book?

There is a great deal of useful and interesting information in this book. I really enjoyed reading it. I felt like I learned much about the stock market and especially mutual funds as a result. I’d heard how important mutual fund costs were to a portfolio, but really learned the "why" in this book. I can’t really go into too much detail on all of what they wrote in the book (it is going to take multiple posts as it is!), so I will present the information and you can check out the book if you want a more detailed treatment of each topic.

The authors start out by pointing out why investing is different than the rest of life by claiming that the following statements are NOT true for investing:

• If you don’t know how to do something, hire an expert

• You get what you pay for

• If there’s a crisis, take action!

• The best predictor of future performance is past performance

These are the investment principles that do work:

• Choose a sound financial lifestyle – I covered their three financial lifestyles in a recent post.

• Start early and invest regularly

• Know what you’re buying

• Preserve your buying power

• Keep costs and taxes low

• Diversify your stock portfolio

  • Diversify your stock risk with a bond portfolio

I thought it was a good idea for the authors to spend time discussing the importance of the extra-investing topics. Basically, the fundamental point is that the more you can do to free up money to invest, the more investment success you will have.

Chapters 1 & 2 focus on financial lifestyle and ways to spend less or make more money so you have more to invest. The following few chapters go into detail explaining what some of the common investments types are and how they work. These include various bonds (with an entire chapter on inflation protected bonds), mutual funds, ETFs, annuities, etc.

The investment part of the book starts in chapter 7. The authors, as you might expect, recommend using index funds as the core, if not the entirety, of your portfolio. The authors present the following list of why index funds are a great choice:

• No sales commissions

• Low operating expenses

  • A 1% difference makes an 18% difference in returns when compounded over 20 years

• Many index funds are tax efficient

• You don’t have to hire a money manager

• Index funds are highly diversified and less risky than individual stocks

• It doesn’t matter who manages the fund

• Style drift and tracking errors aren’t a problem

Asset Allocation

Asset allocation is portrayed in this book as the cornerstone of successful investing. Some of the same theory is discussed in another book recently reviewed at BFN, The Intelligent Asset Allocator . The authors reference a 1986 study of pension plans by Brinson, Hood, & Beebower that found the following:

• Allocation between stocks, bonds, and cash determined 93.6% of the variability of the studied pension plans’ returns
• Manager’s attempts to actively manage their fund cost the average fund a 1.1% reduction in return compared to the indexes

Costs Matter

How is it possible that professional money managers actually cost their funds money, you ask? To borrow (and alter) a phrase, "It’s the costs, stupid!" The authors reference another study that found the expense ratio is the only reliable predictor of future mutual fund performance. Also, there are a number of hidden costs that investors never hear about in a mutual funds’ prospectus:

• Hidden Transaction costs

• Brokerage commissions

• Soft dollar arrangements

• Spread costs

• Market impact costs

The investing takeaway from these chapters: buy a diversified mix of low-cost index funds in the context of an appropriate asset allocation. (you have to figure out your exact "appropriate" asset allocation yourself though there are some very general guidelines in the book)

That’s enough for one post

Ok, I’m stopping here for this post. I appreciate you sticking around as long as you did – and I’m only half way through the book! Update – please check out part 2 of the review .

If you’re already sold on the book….

Want to borrow this book? Search your local library

Want your own copy? Buy this book now at Amazon.com

Check out the books I’ve chosen for my virtual bookshelf

Related posts:

1. BFN Book Review: The Automatic Millionaire A Powerful One-Step Plan to Live and Finish Rich By...
2. Financial Peace University Lesson 9 – Of Mice and Mutual Funds Understanding Investments This week we listened to Dave Ramsey discuss...

Related posts brought to you by Yet Another Related Posts Plugin.

by William Bernstein, PhD, MD

BFN Book Reviews

Every Thursday I have been reviewing a personal finance book. I provide a brief overview of the book and the author, touch on the good and bad in the book, and finally, give you my personal recommendation for whether you should borrow the book, buy the book, or neither.

What is this book about?

As you probably have already figured out, this book is about investing and, specifically, asset allocation. The author discusses numerous investment concepts covering both theory and practical advice. Be warned, however, the information you read here will not be what you would hear from a typical financial advisor (well, maybe a fee-only one). The author presents this book as a guide to enable a normal person to construct and manage his/her own investment portfolio.

Who is the author?

William Bernstein is not a financial advisor or a wall street analyst. Instead, he is a neurologist. So, I’m not sure if that makes him less qualified or more qualified to write this book. He writes the book not as an expert in the field but as a person, probably like you and me, who desires to figure this investing stuff out for himself. Dismissing the typical wall-street wisdom and advice from self-serving brokers, his philosophy is that a normal person can do a good job of managing his/her own portfolio. Bernstein also maintains efficientfrontier.com which provides investing and asset allocation resources.

What are the best parts of the book?

There is a great deal of theory in this book but it is also packed with really practical, useful information. Bernstein gives practical information and backs it up with statistical analysis. Here are some of the really valuable concepts that the author provided in this book (don’t worry – I won’t bother you with the statistics – you can read the book for that information)

1. Effective portfolio diversification can increase return while reducing risk (diversification means creating a portfolio of multiple non-correlated or weakly correlated assets)
2. Adding a small amount of stock to a bond portfolio increases return and reduces risk
3. Adding a small amount of bonds to a stock portfolio significantly reduces risk while reducing return only slightly
4. Favor short-term bonds (6 months to 5 years) rather than long term bonds
5. Indexing is the best way to invest
   • One possible exception: Small-cap growth stocks
6. Periodically re-balance your portfolio back to your target allocation
7. Sticking to your target asset allocation through thick and thin is much more important than picking the right asset allocation
8. Value investing typically returns more than growth investing (good companies make
9. The market is not exactly a "random walk" – a good return this months means a slightly better than average chance of a good return next month.
10. Dynamic asset allocation – changes in allocation that are purely market valuation driven are likely to increase return. Changes in response to economic or political conditions are a very bad idea.
11. There are more expenses to an actively managed mutual fund than just the management expense fee disclosed in the prospectus:
    • Expense ratio
    • Commission ratio
    • Bid-Ask spread
    • Market-impact costs

The author also provides these key pieces of knowledge and advice as a final summary:

1. Risk and reward are inextricably intertwined
2. Those who do not learn from history are condemned to repeat it
3. Portfolios behave differently than their constituent parts
4. For a given degree of risk, there is a portfolio that will deliver the most return; this portfolio occupies the "efficient frontier" of portfolio compositions
5. Focus on the behavior of your portfolio, not on its constituent parts
6. Recognize the benefits of rebalancing (but not too often)
7. The markets are smarter than you are; they are also smarter than the experts
8. Know how expensive the tomatoes are (investigate Price/Earnings, Price/Book Value, Dividend yield)
9. Good companies are usually bad stocks; bad companies are usually good stocks (Lowest P/E stocks typically outperform highest P/E stocks)
10. In the long run, it is very hard to beat a low-expense index mutual fund.

In the interest of brevity, I won’t go into the detailed explanations of these concepts or his advice right now (Don’t worry, though, I plan on doing numerous posts on these investing concepts in the future).  If you’re intrigued by some of these concepts and more more information or you don’t believe the author and want the proof behind them, then you should grab a copy of the book and delve into it.

The three questions to ask yourself when determining asset allocation

The author shows you how to use your answers to these questions to determine a comfortable asset allocation:

1. How many different asset classes do I want to own?
2. How conventional of a portfolio do I want (how much difference from the S&P 500 can I tolerate?)
3. How much risk do I want to take?

Besides the theory and concepts, there is also some very practical information

The author also describes various example asset allocations tailored to how many different types of asset classes you want to include in your portfolio. He also includes a table that lists actual mutual funds to use in your portfolios. He even divides this table into three sections describing which funds are best for tax-sheltered accounts, taxable accounts, and those that are acceptable for either type.

What is not-so-good about the book?

I did not find much bad information in this book. Actually, the biggest issue with the book is that there are a lot of statistics in it. That can be good or bad, depending on your perspective. If you don’t really enjoy reading a lot about the details of the numbers, then this book will be a tedious read for you. In fact, on Bernstein’s website, he notes that this book is "for the Sophisticated Investor" while his similar book, The Four Pillars of Investing , is "for the Liberal Arts Audience."

So what is my recommendation?

If you are not concerned with the mathematical details of why asset allocation and low-cost investing is important, then you probably don’t really need to read this book. Instead, you might want to read Paul Farrell’s The Lazy Person’s Guide to Investing. That book ascribes to the same investment philosophy. It will provide you with some practical examples of actual investment portfolios without bogging you down with all the theory and math.

If you are really interested in understanding why asset allocation is so important, then I think this is a good book to read. As I mentioned, this book contains some really useful and informative information covering both theory and practical advice. I have repeatedly mentioned that the book contains a lot of statistics, but don’t let that scare you. It’s not like this is a statistics textbook (and you can always skip a section or two if you want).

I would say that this is a good candidate for checking out from your local library. Borrow it, read it (maybe renew it), digest it, and become much more knowledgeable about what is important when constructing your portfolio and get inspired that you can do it yourself and do it well!

Want to borrow this book? Search your local library

Want your own copy? Buy this book now at Amazon.com

Check out the books I’ve chosen for my virtual bookshelf

Related posts:

1. BFN Book Review: The Automatic Millionaire A Powerful One-Step Plan to Live and Finish Rich By...
2. Financial Peace University Lesson 9 – Of Mice and Mutual Funds Understanding Investments This week we listened to Dave Ramsey discuss...

Related posts brought to you by Yet Another Related Posts Plugin.

By Dave Ramsey

BFN Book Reviews

Since I started Borrow From None, I have been reviewing a personal finance book each Thursday. I will provide a brief overview of the book and the author, touch on the good and bad in the book, and finally, give you my personal recommendation for whether you should borrow the book, buy the book, or neither.

What is this book about?

This Dave Ramsey book provides a seven-step plan to get out of debt, start saving, and build wealth. It starts off with some chapters on debt myths, money myths, and other hurdles that must be confronted before you can get embrace the plan. Ramsey then spends the remainder of the book going through his seven steps. In the final chapter, he focuses on what to do with the wealth you have accumulated.

Who is the author?

Dave Ramsey currently hosts a radio talk show where he espouses the same ideals found in this book. He is not a financial planner – his expertise in the area comes from the school of experience. At one point, Ramsey had amassed a real estate fortune worth $4 million. Unfortunately, this was all highly leveraged and over the ensuing three years, he lost all of it. That experience triggered his quest to discover how to properly handle money – and that is what led to his second career and this book.

What are the best parts of the book?

In the introduction, Ramsey stresses that "personal finance is 80 percent behavior and only 20 percent head knowledge." Much of the content in this book is based on that premise. The basis for his financial plan is to get out of debt and use your money to build your own wealth instead of giving your money away to others, like your credit card company.

Reading this book, it is quite obvious that Ramsey is a radio talk show host. And as a good radio guy, he likes to present some catchy phrases for his readers to remember. His main motto for the book is "If you will live like no else else, later you can live like no one else." My favorite oft-repeated quote is "it isn’t complicated, but it is difficult."

The best part of the book, the meat of the book, is Ramsey’s seven "baby steps." He devotes a chapter to each of them and provides some excellent and practical advice for each step. His baby steps are as follows:

1. Create a $1000 emergency fund
2. Pay off all debt except your mortgage using his famous "debt snowball" you often hear discussed in personal finance circles
3. Complete the emergency fund of 3 to 6 months expenses
4. Invest 15% of income for retirement
5. Save for college
6. Pay-off your mortgage early
7. Build wealth and give some away

There is some great information in this book. I agree with Ramsey that the basics of building wealth do not require complex formulas.

For instance, his debt snowball technique informs the reader to eliminate the smallest debt first.  Sophisticated people will tell you that is not necessarily the best approach – you should start paying off the highest interest rate debt first. This is strictly correct if you do the math but as Ramsey likes to say: if you understood math, you wouldn’t be in debt in the first place.  His psychology-based approach relies on the fact that getting some early successes will motivate you to continue the plan to the end.

The simple approach really resonates with me and apparently with numerous others as well. An excellent addition to the book are the numerous personal stories that he includes – I found them to be extremely inspiring and motivating.

What is not-so-good about the book?

Most of Ramsey’s advice is very good. I do disagree with him on some of his investing advice, however. He does suggest that mutual funds are the best way for most people to invest. He also does a fair job discussing diversification through mutual funds. He does not, however, mention the importance of choosing low cost mutual funds. Many sources I have read on the topic claim cost is the most important factor when choosing a fund.  Furthermore, he seems to not agree with the mantra "past performance does not guarantee future results" as his plan for choosing funds is to simply find the ones that have produced good past results.  This makes complete sense, unfortunately it doesn’t play out that way in practice.  I will go into much more detail on this in a later post on investing.

I already mentioned that this book is obviously written by a radio talk show host – that can be a good thing or a bad thing depending on your perspective. I read this book immediately after reading The Millionaire Next Door. While that book had a very academic tone, the tone of this book was much less serious. I can see that some would not grant as much weight to the information contained in this book as a result of the writing style.

So what is my recommendation?

The good of this book greatly outweighs the small amount of not-so-good. I love that the approach espoused in this book is simple and straightforward. That is why this book is on my virtual bookshelf .

This is a book that I would recommend purchasing. It is a good reference to check periodically as you move through the baby steps. Getting out of debt and building wealth is a arduous process. Undoubtedly you will get discouraged along the way. When that happens, pick up the book and read a few of the anecdotes and you will get motivated all over again.

Check out the other books I’ve chosen for my virtual bookshelf

Want to borrow this book? Search your local library

Want your own copy? Buy this book now at amazon.com

Related posts:

1. BFN Book Review: The Automatic Millionaire A Powerful One-Step Plan to Live and Finish Rich By...
2. Financial Peace University Lesson 10 – From Fruition to Tuition Planning for Retirement and College This week Ramsey introduced Baby...

Related posts brought to you by Yet Another Related Posts Plugin.

by Paul B. Farrell, JD, PhD

BFN Book Reviews

Over the years, I have found it tremendously helpful to see what other people with similar interests have been reading on the topics of personal finance. That is why I am periodically publishing my own reviews – to hopefully be helpful to others. I will provide a brief overview of the book and the author, touch on the good and bad in the book, and finally, give you my personal recommendation for whether you should borrow the book, buy the book, or neither.

What is this book about?

The Lazy Person’s Guide to Investing covers the basics of investing but it is not your basic investing book. As the title states, the author spends the majority of the book discussing "lazy portfolios." A lazy portfolio is one that is easy to setup and does not require constant monitoring (basically "set it and forget it"). If you read the little blue words up in the right corner of this blog, you’ll see that this type of investing is precisely what I am looking for!

Besides focusing on what a lazy portfolio is and providing examples of some lazy portfolios, the book also challenges some of the commonly accepted investment practices. And for those of us who are not as lazy as others, Dr. Farrell does devote some pages in the book to discussing some "less lazy" strategies for investing.

Who is the author?

Paul Farrell is a currently a columnist with MarketWatch – he has been a columnist since 1997 and has written more than 1,400 columns. He has also written nine books. Before his work with MarketWatch, he was an investment banker with Morgan Stanley, Executive Vice President of the Financial News Network, Executive Vice President of Mercury Entertainment Corp, and had some other stops along the way. His PhD is in Psychology – strangely, I think that is probably a really good field for someone who writes about investing.

What are the best parts of the book?

The meat of this book is the collection of lazy portfolios that the author provides. He did not create these portfolios, rather he found successful ones and listed them here in his book. Some of the lazy portfolios that I found most interesting are:

• The Couch Potato Portfolio (Scott Burns)
• The Coffeehouse Portfolio (Bill Schultheis)
• No Brainer Portfolio (William Bernstein)
• The No Brainer Cowards’ Portfolio
• Kiplinger’s Keep-It-Simple Portfolio
• FundAdvice.com No Load Portfolio (Paul Merriman)

I’m not going to make you read through the specifics of each portfolio here. If you are really interested, try a search or send me an email or grab the book.

Also of importance in this book is the explanation of what a lazy portfolio is and why the author feels using such a portfolio is a good investing strategy. Basically, the author piggy-backs on Modern Portfolio Theory and other previous research that provides the following main points:

1. Diversification (holding non-correlated assets) can increase the return of an investment portfolio while also reducing its overall risk
2. Costs are the only statistically significant measure that accurately determines future investment performance

If you put those two things together – you come up with the case for a lazy portfolio comprised of diversified low-cost index mutual funds. I’ve read a number of books on the subject and seen a number of statistics, and I admit it doesn’t make sense to me that most actively managed funds fail to beat index funds each year and hardly any beat them year after year. But that is what I’ve learned. And that is what makes a lazy portfolio so attractive to me. (pick an asset allocation, put in the money, re-balance every year or 18 months, change the asset allocation slightly as you age…that’s it…that’s lazy and that’s effective and that is sweet!)

What is not-so-good about the book?

To be completely honest with you, I didn’t really enjoy reading this book. I felt that it was somewhat disorganized and quite repetitive. Maybe it was just me, but I kept having the feeling that I read the same information before. (Maybe it wasn’t Farrell’s fault…maybe the Matrix got reloaded while I was reading or something) I also didn’t feel the format was consistent when discussing the various portfolios. I guess that my brain and Dr. Farrell’s simply do not operate the same.

I also found it somewhat strange that the beginning of the book focused on the case for lazy portfolios while some latter chapters seemed to contradict earlier ones with information on how to do more active management of your money.

So what is my recommendation?

To summarize, I found the collection of lazy portfolios extremely useful but didn’t really enjoy reading the book. The list of lazy portfolios contained in this book is extremely useful information. In fact, right now I am trying to close on asset allocations for two of my accounts and I am heavily referring to the portfolios in this book to do that. That is why this book also lands on my virtual bookshelf .

Now, as to the buy/borrow recommendation, I would recommend that you borrow this book from the library and study the portfolios the author includes. Once you get your asset allocation set up, you shouldn’t need to refer back to it too much. On the other hand, it might be worth the purchase if you want to have it around as a reference on lazy portfolios (I’m considering checking it out again myself).

Check out the other books I’ve chosen for my virtual bookshelf .

Want to borrow this book? Search your local library

Want your own copy? Buy this book now at amazon.com

Related posts:

1. BFN Book Review: The Automatic Millionaire A Powerful One-Step Plan to Live and Finish Rich By...
2. Financial Peace University Lesson 9 – Of Mice and Mutual Funds Understanding Investments This week we listened to Dave Ramsey discuss...

Related posts brought to you by Yet Another Related Posts Plugin.

by Joe Dominguez & Vicki Robin

BFN Book Reviews

Over the years, I have found it tremendously helpful to see what other people with similar interests have been reading on the topics of personal finance. That is why I am periodically publishing my own reviews. I hope to give you a brief overview of the book and the authors, touch on the good and bad in the book, and finally, give you my personal recommendation for whether you should borrow the book, buy the book, or act like the book doesn’t exist.

What is this book about?

This book, like so many others, is about creating a financial plan for your life. Unlike most others, however, this book comes at it from a quality of life focus that is quite atypical. While some people might teach that the good life is found in acquiring wealth to buy stuff, the authors posit that the good life is found in being able to actually enjoy life . In other words, instead of being forced to work the high-paying job that you despise in order to fund your expense, maybe you should simplify your life and reduce your necessary expenses. By doing this, you just might be able to do the work that you really love to do even if it is at a lower wage.

Who are the authors?

Joe Dominguez was a financial analyst on Wall Street for only ten years before retiring for good at the age of 30 to spend the rest of his life teaching people to achieve financial independence by changing the way they think about and spend their money. He passed away on January 11, 1997 after a battle with cancer.

Vicki Robin has received numerous awards over the years relating to her work on sustainable living. She has also server served on the President’s Council on Sustainable Development’s Task Force on Population and Consumption.

What are the best parts of the book?

This book changed the way I think about my career and the reason I work. Much like my views on debt (everyone has loans for stuff, right?), I thought that most people work at jobs that they don’t really enjoy and that’s just the way it is.

The book is comprised of "Nine Magical Steps to Create a New Road Map" for your financial path. A lot of this information is excellent – possibly even life-changing!

The authors start out by offering a new definition for money: money equals your life energy . Since most people are working eight (or so) hours per day for their salary – you are essentially trading those hours of your life for that money. The task that naturally follows is to calculate exactly how much money you are actually earning for each hour of life energy you are trading.

Calculating your "real" hourly wage

Of course you start by calculating how much money you earn a month and how many hours you work, but this is only the starting point. The authors want you to keep track of every little, teeny, tiny expense related to work. So, gas and wear and tear on your car if you drive, the cost of lunch, the cost of clothing necessary only for work, even the cost of the treats you buy yourself "after a hard day at work."

But that is still not all. When calculating the actual hourly wage, the authors want you to add in the actual number of hours that you work since most people don’t work just 40. Also, you are instructed to take into account the number of hours spent commuting, shopping for work clothes, vegging out on the couch "after a hard day at work." This is truly a comprehensive look at what you put into work as there is so much more cost and time that goes into work besides your prescribed 8 hours each day (or whatever).

Keeping track of all your expenses

Hah – what personal finance book would be complete without telling its readers to keep track of every penny spent for some period of time. What is interesting here is that the authors ask you to do an exercise with the results from each spending category every month – ask yourself the following three questions:

1. Did I receive fulfillment, satisfaction, and value in proportion to life energy spent?

2. Is this expenditure of life energy in alignment with my values and life purpose?

3. How might this expenditure change if I didn’t have to work for a living?

Valuing Your Life Energy by Minimizing Spending

The authors are all about being frugal and sustainable living (remember, Dominguez retired at age 30!) and their position that the case for frugality lies in valuing your life energy really resonated with me. You are trading your life for money so don’t buy a bunch of useless and expensive junk with it! The authors give the following tips in this chapter:

• Learn and practice intelligent use of life energy, which will result in lowering your expenses and increasing savings.
• Ask the three questions every month
• Learn to define your true needs
• Be conscious in your spending
• Master techniques of wise purchasing – research value, quality, and durability

Valuing Your Life Energy by Maximizing Income

The flip side of valuing your life energy through frugality is, of course, valuing it by maximizing your income. If your real hourly wage is ridiculously low, then you are not getting appropriate value for the life energy you are trading. In this chapter, the authors lay out a number of tips to consider to increase your income, such as taking all factors into account when evaluating a job – lunches, commute, clothes, etc, and asking yourself if you are making a living or making a dying. If your life is miserable because of the job you are working, is it worth that at any salary?

The Crossover Point

I know, this is really dragging on but we’ve just gotten to the really good part (this is the last thing, I promise – I told you I liked it!). Ahhh, the crossover point . The crossover point is the magical place you get to when your passive income from investments crosses over (get it) your expenses. (The reference is to a chart of income, expenses, and investment income you are supposed to create but I think we all understand the concept: passive income > expenses ) At this point, you don’t need your job anymore. Let that sink in for a minute….you are now financially independent and you make more income doing nothing than you do working your current job.

You’ve reached the point where everything is on the table: play golf all day every day (nah, I know you have more noble things to do and remember there is no concept of retirement in the Bible), start a non-profit, be a full-time volunteer, work at a job you love for a reduced salary, etc. (wow, I get excited every time I think about this!)

What is not-so-good about the book?

Ok, I’ve gushed about this book for untold paragraphs, but it is not without its warts.

Inflation does not exist for an individual making wise purchases

Personally, I find that the most glaring issue is the authors’ views on inflation. Basically, they don’t really believe it exists. They believe that the government figures on inflation are skewed and do not necessarily apply to individuals. By making smart financial decisions, you can get to the point where inflation does not exist for you personally. You can get into more detail of their position by reading the book, but that is the gist of it. In some ways, I can see their argument, but at the same time, as anyone who has bought milk or gasoline lately has seen, it sure seems like the price of some things are going up. (Interestingly, I have friends who say that the government skews the inflation figures in the other direction to make it seem like things are not as bad as they really are…man, the government just can’t win!)

Invest only in US government bonds

The only investing advice given in this book is to invest the safest, non-speculative, long-duration fixed-income securities (too-many-hyphens!). Those would be US Treasury Bond and US government agency bonds. The authors feel there is no need to do any other type of investing. I think this is a fine strategy if you have enough money saved up to lock in a 4% or 6% or whatever rate and live off of the interest for 30 years (remember, inflation doesn’t exist). I think for most of us, this will not provide enough income and growth to sustain us over the years (Guess I need to work on valuing my life energy by minimizing my spending even more). Note: I don’t mean to come off flippant here – Dominguez is the one who lived off his retirement savings for 30 years – not me! At the same time, I do think this part of the book could have been more useful.

So what is my recommendation?

This is another book that I definitely recommend. Just like The Millionaire Next Door , this is one of the books I’ve placed on my virtual bookshelf . I’ve gone into a lot of detail in this review, but the book contains a lot more information that I didn’t touch upon. Personally, I borrowed this book from the library – but this might be one worth purchasing. I haven’t been able to fully work through the nine steps nor have I been able to refer back to it since the library wanted it back. Borrow or purchase (or borrow and then purchase if you like it), I do think this is a great book to read and really clarify your thoughts on your life and your career.

Check out the other books I’ve chosen for my virtual bookshelf .

Want to borrow this book? Search your local library

Want your own copy? Buy this book now at amazon.com

Related posts:

1. BFN Book Review: The Automatic Millionaire A Powerful One-Step Plan to Live and Finish Rich By...
2. Weekly Bible Verse – One View of a “Productive Life” Do not work for food that spoils, but for food...

Related posts brought to you by Yet Another Related Posts Plugin.

Authors: Thomas Stanley, PhD & William Danko, PhD

My very first book review

Since early 2007, I have read a number of personal finance books during my search to ensure that I was on the right financial path. As I search for other books to read, I also found it tremendously helpful to see what other people with similar interests were reading. My goal is to pass on this information to you as well. I hope to give you a brief overview of the book and the authors, touch on the good and bad in the book, and finally give you my personal recommendation for whether you should borrow the book, buy the book, or act like the book doesn’t exist.

The Millionaire Next Door is the second book I read during this process and it still is what I consider one of the most important to righting my financial ship (shoot, I just gave away the ending!).

What is this book about?

The Millionaire Next Door is a glimpse into what an actual “millionaire” looks like in America . A lot of us have preconceived notions of what wealthy people look like, how they act, where they live, what they drive, and so on and so forth. Interestingly, so did the authors when they first started out in their attempts to market to wealthy people…and that’s why they didn’t find many where they first started looking. Intrigued by this, the authors set out to study and determine what it takes to become wealthy in America . They accomplished this and I think the results will surprise many of us (well, it won’t surprise me…since I already read the book).

Who are the authors?

Both Thomas Stanley and William Danko have PhDs and have been studying wealthy people for decades. Though Stanley’s PhD is in Business Administration, their research experience is in marketing – that is how they got interested in this topic (apparently marketing type people like to market to wealthy type people). Thomas Stanley has also written numerous several other best-selling books on marketing and affluent people and marketing to affluent people.

What is good about the book?

I found a mountain of excellent information in this book. To me, the book really changed the way I look at wealth and what it takes to become wealthy. Much like this post , the authors view wealth not as how many things you have but how large a persons net worth is.

For me, the biggest take-away from this book is that most wealthy people got that way by not acting
“wealthy.” Instead of spending their money on things that would cause other people to think they were wealthy, they just saved and invested their money and actually became wealthy. This was so inspiring to me! I feel like I make a good salary, but I am in no way raking in the big bucks of a CEO or a surgeon or anything like that. This book showed me that someone like me really has no excuse not to become wealthy with judicious planning and discipline. After reading this book, I feel like it is certainly possible to give some money away, live a comfortable but not extravagant life, save money, and eventually free myself to be able to
devote my time and money to whatever I feel is most beneficial at that time. Reading this book has shown me that it is actually possible to achieve this!

Ok, I’m calming down now…back to the book. Here are some really interesting points that I pulled out of the book. The authors list seven factors that the typical millionaires have in common:

1. They live well below their means
2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth
3. They believe that financial independence is more important than displaying high social status
4. Their parents did not provide economic outpatient care
5. Their adult children are economically self-sufficient
6. They are proficient in targeting market opportunities
7. They chose the right occupation

I especially like numbers one and three.

Another interesting part of the book is the equations the authors lay out that can be used to
determine how your net worth compares to others in your age and income brackets. The following equations determine whether you are an under-accumulator (UAW), average accumulator (AAW), or prodigious accumulator (PAW) or wealth:

AAW = (Age) * (Realized Pretax household income) / 10

PAW = 2 * AAW

UAW = AAW / 2

So, using those formulas, you can plug in your age and household income and get a general feel for how well you are doing in saving and accumulating wealth according to Thomas and Danko . Let’s do an example. Say you are 30 and you make $50,000 per year. The AAW value would be a net worth of 30 * $50000 / 10 = $150,000. So, if you have a net worth of $150,000, then you are average for your age and income bracket. If you have a net worth of twice that, $300,000, then you congratulations you are considered a PAW by the authors. If, on the other hand, you have a net worth of half of that, $75,000, then they would consider you a UAW. (I wonder what I am…now that I think about it, I haven’t calculated mine for awhile).

There is a wealth (hah, a pun!) of other good information in this book. I have pulled out but just a bit of the good stuff.

What is not-so-good about the book?

I really liked this book overall, but that is not to say that there weren’t some issues. The biggest issue is that this book is written by statisticians or, at least, two men pretending to be statisticians. It is very easy to get bogged down in some of the details of the book and lose momentum. If you are not inclined to numbers or reading about numbers (even this electrical engineer got stymied in some of the chapters), then this might be a difficult read to survive. I still would recommend reading it, but I would recommend being judicious about the chapters you read and skipping through some parts instead of abandoning it altogether.

So what is my recommendation?

I definitely recommend that you read this book. In fact, it is one of the books I’ve deemed worthy of a spot on my virtual bookshelf . I recommend that you read it and take some notes to be inspired. My hope is that it opens your eyes to how some actual millionaires got and keep their money and possibly dispels some of the fallacies you might currently hold about what millionaires look like. Personally, I borrowed this book from the library, read it, and took some notes (and returned it). It does have some anecdotes that I would consider quite inspiring – so if you are a person who likes to re-read personal stories for inspiration, it might be worth purchasing the book to have it on your bookshelf.

Check out the other books I’ve chosen for my virtual bookshelf .

Want to borrow this book? Search your local library

Want your own copy? Buy this book now at amazon.com

Related posts:

1. BFN Book Review: The Automatic Millionaire A Powerful One-Step Plan to Live and Finish Rich By...
2. Guest Post: Five Frugal Multi Millionaires This guest post was written by Kris who writes about...

Related posts brought to you by Yet Another Related Posts Plugin.