Personal Finance Book Suggestions?

luc13n asks: "I've seen others making requests for books or reading suggestions. I've been out of college and working professionally in the IT field for two years now. I have some money in the checking account and the savings account and I've started wondering... is there a better way to manage my money? Kinda the old adage 'make your money work fo you'. Does anyone have any good suggested readings to teach a 'young'n' how to 'make his money work for him'?"

Comments

"Your money or your life"

[Nutcase]

Before you run off and start investing and "making your money work for you" in the traditional sense, have a look at this. It certainly doesn't fall into the traditional "more more more" mindset of most people - instead if focuses on "what is enough" and making you happy.

In the words of the late, great Douglas Adams - "these people were extraordinarilly unhappy and attempted to correct their problem by spending all their time moving small pieces of green paper around - which is odd because on the whole it wasn't the pieces of green paper that were unhappy."

Just a different perspective from the norm - but one that may do more for you than any book on the money markets ever could.

Re:"Your money or your life"

[PD]

Right. There's two kinds of money - enough, and not enough. When I was in college I had no money. Just like a lot of people. I determined back then that when I reached the point where I could decide to go to the theater and see a movie, on a whim, any time I liked, without worrying about paying the phone bill, that would meet my definition of "enough" money. Everything past that would be gravy.

What I discovered was that it takes a surprisingly small amount of money to meet that definition. I'm not saying that you should set your goals as I did way back when I was a poor college student, but you should set some kind of goals first. What do you want to make the money for?

If your goal is to make a billion dollars in order to become a patron of the arts, that's a completely different strategy than to save two million dollars by the time you are 65, so you can go on a permanent RV camping trip driving between your children's homes.

Pick your goal first, figure out how much money is "enough", and center your life on the improvement of the person and not the acquisition of stuff in the meantime.

Don't take any *one* person or book's advice

[herrlich_98]

Read several books and talk to lots of people and you'll start to get a feel for what the right thing to do is. Ask someone, family/friend, that you trust.

The only specific book I'll mention is _Making the Most of Your Money_ by Jane Bryant Quinn. It is a good general monkey book which is probably the place to start rather than diving into the investing side of the equation.

I also like the general approach of the Motley Fool guys although I haven't spent much time at their site in a couple years.

managing your $$$

[Anonymous Coward]

some tips from a self-employed IT guy who likes finance:

*) Always be aware of your finances. That means using a spreadsheet or software like GnuCash. You want to be able to see where your money is going. For instance, many people don't realize just how much credit card interest they pay in a year, or how much they spend on starbucks coffee or whatever. Get the big picture.

*) Always be emotionless. Don't buy stocks because you like the company's products. Don't keep credit cards around that you don't need. Don't think that the bank gives a shit if you have your mortgage with them or somebody else. It's hard to explain exactly what I mean here, but basically it means you should always focus on the bottom line and the big picture, rather than what other people think.

*) Manage your debt. Many people spend a lot of time managing their assets but leaving their debt in a disorganized pile. If you have five credit cards, examine the interest rate on each. Consolidate your debt (or better yet, pay it off) if the interest rate is more than 8-10%. Don't forget to consider any tax advantages to mortgage interest and student loan interest. Don't forget that you can borrow against your stock portfolio (margin) which can be tax-deductible and MAY be a good choice in some circumstances if you need emergency money.

If you're paying off debt, hit the highest interest and lowest tax advantage first and work your way down. Do this mechanically, just look at the numbers. Call your credit card company and ask for a lower rate, about 50% of the time they will do it just because you asked.

I personally have a big $5000 balance at 2.9% permanent on my Citibank card. That's an example of "good" credit card debt. Store cards at 22% are an example of "horrible" credit card debt. Burn any store charge cards you might have.

*) Have a "cash cushion". Be sure you always have 6 months of income sitting in your savings as cash. In other words, what do you make in a month? Multiply by 6 and have it in your savings account.

*) Don't invest until you've paid off your big debts and created the cushion mentioned above. It is PLAIN STUPID to invest in stocks when you have 12+% credit cards. Get an instant return on your money by paying off the cards.

*) Once you decide to invest, remember that the market has a long-term historical return of about 10% per year. If you leave your money in at least 10 years, you will most definitely see this return. Note: it will take HARD WORK to beat the market. Will you be able to spot the next Enron? Will you spot a company that's inflating it's quarterly earnings by moving stuff around ("borrowing earnings from the future")... can you spot a company that's in trouble because it can't keep the inventory moving? Do you understand the difference between positive cash flow and positive earnings?

The easiest thing to do is NOT try to beat the market. Just invest in an index fund (Vanguard has many great ones) or exchange-traded index funds (symbols like DIA, VTI, SPY). These all have tiny management fees (>0.5%).

*) Check out REITs (real estate investment trusts) these are GREAT instruments that pay big dividends and are fairly stable. They are like mutual funds in a way, but better. My favorite is FR (First Industrial) which I bought many years about when it was at 75% NAV (net asset value).. that was like finding a box with $10,000 worth of bills inside, with a price tag of $7500. Would you pass that up? I sure didn't.. this was during the boom .. when the market tanked, I was STILL making 7-8% year on that part of my portfolio. Love those REITs!!

Note, REITs may give you a headache at tax time because they throw off so much non-income dividends (unrecaptured section 1250 gains and shit like that). .. but it's worth it for the returns in my opinion. Or just put them in your IRA and forget about it.

Remember this is just MY opinion, don't buy anything you don't understand. That means...

Book list and suggestions

[XDG]

Many good posts so far. Here are my contributions. I work in financial services and have perspective from the "other side", as well as my own research managing my own finances.

First, I highly recommend you use Quicken/Money religiously. I only bank/etc with companies that I can download direct to Quicken. Watching your net-worth chart over months/years can be inspiring. Seeing each month if you made more than you spent is crucial.

Second, the best piece of advice is to invest at least 10% of what you make. To follow common advice, "pay yourself first"! This means making that 10% disappear from your paycheck before you even think of it as money to use to pay bills, buy pizza, etc. If you can put this in a 401k, great! If not, do it anyway.

Third, the vast majority of people investing should probably be using index funds. Yes, some people make money in the market, but it's probably just luck. (Really! There are some 30,000 or so mutual funds -- half don't beat the market each year. Imagine beating the market equal to flipping heads on a coin. Now watch 30,000 people flip a coin once a year for 10 years or so. You're still going to have some lucky few who flip heads 9/10 times. Ever wonder why mutual fund companies have so many funds? It's so they always have at least one or two that do well last year that they can advertise. If professional money managers can't do better than 50/50, why do you hear about so many successful individuals? You're not talking about 30,000, now you're talking millions. At 50/50 odds -- or worse -- you'll always hear about someone who made a lot of money.) My advise for anyone starting out is to open an account at Vanguard and stick your money is a broadly diversified index fund.

Four, make sure you have an emergency fund -- three months expenses is usually cited. Once that's topped up, you should think about investing most of the rest. Weight investments heavily towards stocks when you're young, and shift gradually towards bonds as you retire.

Books that are useful:

Random Walk Down Wall Street -- by the founder of Vanguard

Stocks For The Long Run -- a top academic perspective on investing

When I was very young (high school), I found that Smart Money, by Ken & Daria Dolan was a good overview. That's old, but they have more recents texts.

In the "funny story" model of teaching basics of financial planning, you might consider The Wealthy Barber (recommended by a friend of mine, though I found it too simple by the time I got around to it) and/or The Richest Man In Babylon (parables about money originally written in 1926 and still applicable -- see the Amazon reviews!).

For why not to confuse chance with skill, try Fooled by Randomness. It has a lot of snide commentary at industry insiders, but makes a good point about why humans mistake luck for skill, broadly.

I hope those are a helpful start. Best of luck!

-XDG