If you only take home one lesson from this book regarding personal finance, let it be the “Save 10% of your income.” lesson. All other investments aside, this will be the one that sets you in the correct direction. Saving 10% is the equivalent of the two-pound weight that you find at Walmart. Most of us laugh at that weight when we walk down that isle but, the fact is, the person who buys that weight is lifting circles around those of us that sit on the couch all evening. Jumping right into investing without starting with the basics is like starting with 20-pound weights. Sure, you can do it and maybe you even understand it a little bit. But without the discipline, you aren’t likely to stick with it.
Let’s say you’re only reading for the investment advice. You take your savings – say $500 – and go out and purchase some stock you truly believe in. While what you did is not wrong, if you don’t continue to save 10% after you make your investment, then chances are that at the first tragedy or economic boom, you’re going to take your money out of the stock market.
Investments are just like seeds that become mighty trees. If you’re only able to water your plants for a few months before uprooting them, you aren’t getting the full potential out of your investments. By saving a percentage of everything you make, you’ll never need to uproot your investments and they’ll continue to grow indefinitely.
Ten percent of your income can seem like a lot to some. That’s fine too. Save something and save it often. Get used to not having that income and plan your life based on the what is left after savings. When you get a raise, depending on your needs, you can continue to save the same amount or you can increase your savings without noticing any change in your daily life. Finally, make sure that your savings are put into an appropriate investment vehicle. If you are depositing 10% of your paycheck into a special checking account that is not paying you any interest, you are actually losing money year over year due to inflation. Inflation averages at about 3% a year. Try to find a savings account/CD/investment that will net you more than a 3% return on investment. If you can’t find anything in that interest rate range that you feel comfortable with, at least put the funds in a basic savings account .05% is better than nothing. Don’t be that person that leaves your money in a mattress or in a personal safe.
There is one last point that may become outdated in the next few decades. There is a common lesson in the personal finance community that having money in your wallet helps you walk with a swagger and have a nonchalant attitude everywhere you go. While this can certainly help some people, for others, however, carrying around cash is like saying, “This is the money that I EXPECT to spend.”. For those of us who don’t like carrying cash, our best bet is to get the best credit card that we are qualified for. In today’s day and age, the only excuse to not have a cash back credit card is that you are still building your initial credit. A card that gives money back is like a card that gives you a discount on everything you buy. Find a card with the highest cashback and don’t apply for a card that will limit you to certain expenses. Today’s card worth their salt will give you cash back on everything.
Give money a chance to earn for you before giving it away. If you bank compounds interest every day you don’t spend your hard earned cash is another way that it can work for you. Over time, listening to that little voice in your head that tells you, “Don’t spend that money yet,” pays off big in the end.
Guard your treasure from loss: The idea there is to trust only those who truly know what they are talking about. If I approached you and said “Come with me and invest in this construction company. They are putting up a large mall and I plan on riding this gravy train up to the top!” Should you listen to me and invest? The answer is NO! I have no idea about how construction companies work! Another example is taking jeweler advice from a miner. Sure, the miner can sell you a lot of gems for really cheap, but it takes a jeweler to tell you that you’ve been sold a bunch of useless glass! Question persons who know what they are talking about.
The other lesson to be is learned here is WHO (As in the individual) you should invest with. There are three (3) types of people who will ask you to invest in them: Those who already have the assets to repay you, those who have the ability to repay you, and those who don’t have the ability to repay you.
The person who can already pay you back has the ability to invest themselves but, for one reason or another, want to use your money. Let’s say I’ve found a successful bagel I want to start selling. Sure, I have $1,000 to start the investment, but I want to put that money in the stock market to get a ~7% return on my investment. I could get a bank (Or god forbid a credit card loan) and need to pay them back 6%. If you’re willing to loan me the money at 4% interest, that sounds like the best method for me to use. You, as the investor, can feel safe because I have the money to pay you back already, I just have my money already in profitable ventures.
The person that has the ability to pay you back is the person that has a day job that wants to open a restaurant. As long as this person doesn’t plan on quitting their job, and your review with their manager that the proposed business won’t distract the investee to the point of termination, you can feel confident sharing your wealth with this person. They can generate income to get you your principal and interest back in time.
The person that doesn't have the ability to pay you back is someone who, if you give them money, consider it a gift instead of an investment. This is the friend or family member that is down on their luck after losing their job. If this person approaches you and they want you to invest in a business with them, be weary. Chances are, you are actually HURTING the person by giving them a loan. You’re not investing in them, you’re burdening them with more debt.
One final lesson to leave you with is that you should make your dwelling profitable – I know that this one isn’t for everyone but it is the most widely accepted method to wealth. Home ownership can either be your biggest asset or your biggest liability. A house that doesn’t generate income is a liability. If you already have the property, consider renting out portions of it to convert it into an asset. If there is a popular concert coming up in the next town over, renting out a room for a few nights through Airbnb can help you save some money and take a leap towards financial independence.
Ensuring future income allows you to live life on your terms. When you save and invest, you no longer need to rely on working for money. Your income streams can flow regardless of the season, economy, and life situations. Imagine being able to not worry about the lights being shut off. That is the dream that all of us aspire to. Like everything else in life, nothing truly happens overnight. Get yourself into a position where you can work for fun. Dream of the day when you can tell your boss, “You don’t like the way I do it? Fire me; I don’t need this job.” Won’t that be a great day”?
Increasing your ability to earn: This generally means books and content and education. Buy a bookshelf, fill it with books. I love reading and I admit I love reading because I am good at it but it didn’t happen overnight. I had to read quite a lot of books to be able to skim through them and still retain the information. My advice: Buy used books. (I use thriftbooks.com) and highlight in the books the information that stands out to you. When I read, I’m really only looking for information worth highlighting. I gloss over/barely read the parts of the books that says “This principal was founded in 1986 by John……” or I gloss over that and get right to the parts that go something like “This is the principal and this is when it’s useful.”
Once you’re done reading the book, it is now filled with highlighted information that you found useful. Whenever you think to yourself, “Hey that book had something useful that pertained to my situation,” you can pick up the book and only have ~15 pages that you really need to read to find your information.
I can actually take it a step further if I feel like the book had a significant portion of useful information. I type out the highlighted parts into a word doc. To also make this easier, I have that speech recognition software on my other laptop to type for me as I read directly from the book.
In terms of education, I feel like post high school classes can be hit or miss. I love my associate degree that I got from a community college. It was that platform that I used to get a job in an accounting department. I learned a lot more with on the job training than I did in class. However, I have family that spent all four years of college at a Umass school and while I am envious of his experience, he is over $100,000.00in debt last I checked. That I am not jealous of. I can’t sit here and tell you with a straight face that college isn’t worth it because I actually plan on going to get my bachelors very soon. What I can tell you is this: My cousin might make a little bit more than me per hour, but when I look at our equity, I come out way ahead. I already have multiple assets on my balance sheet. My cousins have big red numbers on their balance sheets. When seeking a bachelors, I recommend community college first, and either applying for every scholarship possible or letting the military pay for your education. A degree with no debt is a powerful asset. A degree with significant debt won’t always put you ahead, especially against a knowledgeable person with no debt.