13 June 2011

Book Review - The Wealthy Barber

If you only buy one book about personal finance in your life, I hope it is this one. The idea is basic, there are no pictures, charts, or graphs, and in terms of plot and prose, it is closer to Dan Brown than John Updike (sorry, I was an English major for a while and I’m rather picky). On the plus side, it is a fairly easy read (once you get past all of the Detroit-based sports analogies) and it covers the financial planning basics for just about everyone. And it covers them well, in a conversational style that makes for pleasant reading. Even better, it is available on Amazon.com for pennies, which is something that the wealthy barber himself would think was a pretty good idea.

The premise of the book is that a young teacher, his sister, and a childhood best friend are directed to their childhood home town’s local barber for financial advice. While this at first seems to be an illogical reach, we learn that Roy had to drop out of college to take over a family barber shop and that the experience did not stand in the way of his financial success. He mentors his young charges into learning a few basic steps that, if followed consistently, will lead them to financial success.

A few of Roy’s more important points:
·         Save 10% of everything you earn for long term investments
·         Utilize mutual funds to diversify investments, rather than trying to make big, quick scores with individual stocks.
·         Wills and life insurance are critical responsibilities for people with families.
·         Buying a home is a good thing (in spite of recent activities in some specific areas, this remains good advice).
·         Know when to seek professional help for taxes, investments, insurance, etc.
·         Take advantage of the variety of retirement savings vehicles available to you, especially tax deferral and employer matches (Note: the author is a Canadian, and the book was originally written for a Canadian audience. U.S. versions of the book are widely available, but just in case, it might be helpful to know that Canadian RRSPs are very similar to American IRAs and 401(k)s. The basic advice is still golden.)

If there is one area in which I disagree with Mr. Chilton, it would be that he does not emphasize having a good emergency fund. He does, in one of the wee latter chapters, mention the importance of disability insurance, but that is not the same as an emergency fund. Emerging research indicates that having an emergency fund is a critical element of financial satisfaction, so having one should be a priority.

Another thing: the Wealthy Barber does not harp on debt like many financial authors. Of course, debt is not a good thing in and of itself, but it is not evil either. Leveraging one’s assets is necessary for many things such as buying a home, but it needs to be controlled. The Wealthy Barber’s advice is not for people whose primary financial concern is debt. His advice is aimed at people whose professional education does not naturally encompass basic financial training. 

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