Do you know your net worth? Is your will up to date, and do you carry enough insurance? Are you saving for retirement?
While the above are usually not topics of everyday conversation, they are probably not too far from the minds of many of us. And yet we often answer "no" or "not enough" to those questions.
Enter The Wealthy Barber by David Chilton. Through a series of fictitious conversations among several friends, family members, and the local barber, Chilton lays out some very simple guidelines for personal financial success. If followed, these have the potential for turning your financial situation around. Imagine going from owing money left and right, maybe trying to keep up with the Joneses, to becoming wealthy enough to retire comfortably, even early. Imagine having enough money to own a boat, have a house on the lake, and get season football tickets.
It is Chilton's argument that all of us, regardless of income, have within ourselves the potential to become financially independent. A telling quote from the book, found early on, is when the character Dave's father tells him, "Six years ago, when I finally learned the basics of financial planning, I couldn't believe how straightforward they were. It's just common sense."
The unlikely hero of the tale is Roy, the barber. In six lessons given during monthly haircuts, he advises Dave; his sister, Cathy; and his friend, Tom, about the basics of financial planning. He starts off with the golden lesson of "pay yourself first." That is, set aside 10% of your income every month right off the top and invest it for the long term. With a decent rate of return, that little bit will grow into many tens of thousands, even hundreds of thousands, of dollars over the years. While 10% may seem a lot, especially for those living close to, or even over, the ragged edge, Roy argues that most people, once they get started, won't even miss it. Just as we adjust rather easily to a pay raise, we can also adjust to a pay cut. By doing this saving automatically, such as having it withdrawn and put into a mutual fund by your bank, you probably won't even notice.
Chilton argues strongly for placing the 10% into mutual funds. He further suggests taking time to find a good mutual fund and manager who has consistently outperformed the market. Where I disagree with him, however, is with his statement that individual stock investing is too difficult for most people. If the majority of your money is in a mutual fund returning a market-beating 13%, having a couple of well-performing stocks can help boost your returns. Companies like Altria Group
In later conversations, Chilton has his barber discuss the basics of wills and life insurance, buying a home, savings and the use of credit, even income taxes. While these are dry topics to most people, he covers them in an engaging way through conversations between the various characters.
All in all, this book is a good primer for many common-sense personal finance concepts. The characters may get their own financial lives turned around a little too quickly for me to find believable, but that is a minor point. When they do change, the characters' own statements of feeling more in control of their lives certainly ring true. After paying off the last of my credit card debt a few years ago, I found the sense of freedom to be exhilarating.
Finally, I certainly agree with Chilton's belief that everyone should know the basics of financial planning, and that with a bit of discipline, everyone can become much better off than they currently are. If that appeals to you, pick up a copy of this easy-to-read book.
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