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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'?"
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.
Suze Orman
Yes, this is that peppy blonde lady that you see on PBS.
She writes good, down to earth, easy to understand books on finances which clarify issues and simplify many financial concepts (which aren't actually that complex, once you think about them the right way).
Not a "make money fast" type of author, but she writes alot on "make and save money for retirement", or "How to save money for when you are laid off and can't find work for 8 months".
"Can of worms? The can is open... the worms are everywhere."
Check out the Motley Fool website. They have good advice on saving up based on your goals -- saving for that new car(dont lose principal) vs. saving for retirement (maximise returns). They also have a book and pretty decent advice in general. If you want one piece of advice, dont play the markets by buying individual stocks, just invest in an index fund.
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.
A great first book is A Random Walk Down Wall Street,... . If Wall Street, etc. seems dark & mysterious (and even if it doesnt) this is a great book. It starts by giving you a background in some of the mania that has surronded stock-markets, going all the way back to the Dutch Tulip bubble of several hundred years ago. If you're wondering how pratical something like that could be, just think of the dot-com boom of the late 90's. It proceeds to explain clearly & elegantly various things such as technical & fundamental analysis, the theory of efficent markets, and ultimetly, the value of index funds like the S&P 500.
After having started a few "HOW TO PICK STOCKS" books, this was probably the first solid financial book I found that made sense, was able to round out of my financial knowledge & give pratical advice at the same time.
If Random Walk seems to weighty, Rich Dad, Poor Dad: What the Rich Teach... isn't bad. The author, Robert T. Kiyosaki, has several books in this series, this one being the first. It's written in a non-intimidating way, with much of book conveying ideas easily as converstations between the author & his rich friend's father (aka Rich Dad). He compares his dad's common viewpoint on finacial matters (aka Poor Dad) to Rich Dad's method, and hence the title.
If you're only two years out of school, some of initial steps are just doing good math:
Credit cards are great & really convient, but they have an AMAZINGLY high interest rate. They're 2nd only to the QuickCash/PayDay Advance places for screwing over the average joe. Pay those suckers off!
If you reach that point -- no debt, regular contributions to 401k, an annual 3k contribution to your IRA, you're going to be in pretty good shape. Best of all, you're starting young, and in a down market, so you'll really give compond interest a chance to work it's magic on your hard earned cash.
-Bill
SlashSig Karma: Excellent (mostly affected by moderatio
Two more words: be assertive.
Don't let them run you over with what they think is best and don't let them cower you into it (I guess this is more for people who feel very uncertain about what type of investment they should do). I used American Express and what they had me do was layout what I wanted as a goal for a flat fee. They would then offer "services" which are sold hard to help me attain that goal. I haven't heard from my manager in months. I haven't had the time and was wise enough not to give them too much money to "play" with.
They did *not* take a good look at my investment comfortability nor did they take a good look at my interest rates in current investments. They also wanted me to give them authorization to my bank accounts (and were very pushy about it). I'm not that stupid, especially with the paypal stories going around. I told them in no uncertain terms were they, or anyone going to have access because it allowed unmonitored transactions and everyone knows it is harder to get cash back than giving it.
First off, they explained that because I am "young" I can "risk" more and not be dead in the water because I can always "make it up later". I think this is a crappy approach to investment.
Second, they wanted me to invest money in the stock market indexes when I was clearly observing a downward trend. I only gave them the first thousand because I wanted to see where it went. It was guaranteed not to lose money, but had a cap at 6% return. So far, it has not made a dime while my fixed interest CDs are rocking away at 3.75 %. My financial advisor did not seem happy that I had given my credit union 3K for a fixed return and has probably not called me because of it.
Which brings me to my third: find a credit union. They are usually nicer and have higher interest rate return than banks. And if the people from AmEx had actually taken a *look* at my financial data, they would have seen that their "locked, harder to access money, must pay fee to do so quickly" 3rd tier account gave a *lower* percent interest than my savings account which is accessible 24/7.
"Would you rather have a playstation addicted dork wearing a star wars t-shirt?"
Honestly you will never be as rich as you feel the first three months of gainful employment right out of college (assuming you can find a job.)
... have about $25 a month left over after bills, food, etc... to buy whatever you wanted - to a job bringing home $2250 a month after taxes, still living with 3 roommates still paying about $400 a month for bills and rent. All of a sudden you have 80x the amount of 'fun money.'
:
The reason for this is you go from the +/- minimum wage paying job you had taking home $425 a month so you could afford Ramen and Peanut Butter and Dr. Pepper and Bacardi Rum and live in a small apartment with three other roommates
Then you go out, buy a new car, rent your own place, fill it up with stuff (all charged on your MasterCard,) start running the air conditioner, eat out all the time, pay the entire set of bills yourself (not split 4 ways anymore), actually get full coverage insurance on your car, have pizza delivered 5 times a week and Bingo! you are right back to $25 a month left over after you pay all the bills.
I think my monthly liquor bill now runs more than my entire monthly living budget when I was in college (+/- $400 a month) Granted I have been out of college for a little while now, but still.
-:-
Another thing to note - if you take the above and stretch it a little, anybody making $20k a year more than you is rich simply because you would consider yourself rich if you had another $20k a year. Problem is if you start earning another $20k a year you actually only take home about another $1000 a month and within a few months your lifestyle grows to absorb that.
-:-
Original Poster
If your boss offers you a 401(k) and offers any matching whatsoever (ie matches $1 for each $1 you put in up to x% of your salary) be sure you are putting in as much as possible to maximize his matching funds. Even if the stock market is losing 10% a year, if your employer matches your contributions you are still earning 80% on your money the first year (which is AWESOME.)
Another thing, arrange credit NOW. While you have good cashflow look into overdraft protection on your checking account (no more bounced checks, not that you ever did that anyways, but having a $1,000 credit line attached to a checking account is one of the best things I ever did.) Build your good credit file, buy big work related items on your personal credit cards (travel works too) and pay them back in full at the end of the month (expense account.) In 5 years when you have awesome big credit and can buy a $250,000 house at 5% instead of at 8% you will really, reall thank me for this.
Find out what it takes to get the MBNA Quantum card. Do those things. Getting the card is less important than being able to get it.
Glonoinha the MebiByte Slayer
"The Richest Man in Babylon" - Simple, timeless ways for getting ahead. An easy read, and short to boot.
"The Millionaire Next Door" and "The Millionaire Mind" - The results of a broad survey of millionaires. What they're actually like, how they got there. They may not be who you think.
"Rich Dad, Poor Dad" series - attitudes of the rich, educating yourself financially, and some strategies for doing.
-Uberhund
Websites:
http://www.fool.comt p://www.canadianmoneysaver.ca
http://www.bylo.org
http://stingyinvestor.com
http://www.moneysense.ca
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Books:
Random Walk down Wall Street (by Walkel)
The Intelligent Investor (by Graham)
This is the book I point my friends to when they ask this question - Get A Financial Life : Personal Finance In Your Twenties And Thirties by Beth Kobliner. Amazon link. They've all been happy with it. Slim, readable, complete, good advice. I believe Kobliner was a columnist for Money Magazine for many years. She now has her own website.
Other classics, good to move on to once you've read that one: A Random Walk Down Wall Street by Burton G. Malkiel. Good book to understand what happens when your money is in the stock market. Amazon link.And I like Jane Bryant Quinn's Making the Most of Your Money, though I don't think it's as generally well-received as the first two. However, it does a pretty good job of saying something about any financial situation you can think of. Amazon link.
Stay away from mutual funds (and in fact the stock market as a whole unless you are willing to spend a lot of time researching individual companies, etc.). The market is still way over it's long term base line, and with a glut of baby boomers just waiting for the prices to rise a bit so they call sell (they're hitting retierment soon, if they haven't already), we aren't going to see a bubble like the 90's for another 20+ years--or if we do it will burst a lot worse than this one did at which point having your cash in a jar will turn out to have been the smart move.
I've made a profit in the market every year since I started (including the last three) but it's about the effort level of being a kernel hacker--if you don't do a lot of reading and a lot of thinking you're going to be in a lot of trouble.
--MarkusQ
P.S. The best advise I ever got about the market: ignore press releases. Turn off the sound and watch the money. (e.g. no matter how rosy a picture a company paints, if they are burning money fast enough to be broke in six months, they're in deep do-do. But you won't see this by reading the one line summary of their annual report. You need to read the report, and then research it (where does this number come from?), to figure out what they aren't telling you.)
I offer a contrary to most advice here:
Stay AWAY from credit, don't use it, ever, despite what almost everyone says, you honestly don't need it. If you need one small card for purchases online, that is different, you never spend what you don't have, just use the CC as a service, not a loan.
Land. Land is the oldest form of accumulated and stored and useful wealth. Pay for your property, then build as you go on it. When the structure is "good enough" move into it. Make sure it is rural property with good water onsite. And yes, this is totally possible. Give you an example, my sis and BIL did this while renting, paid cash for a few acres. Every month took what extra they had towards a home that would normally be a "payment" or two, bought materials,loaded up the pickup, went over, camped out, used up those materials. rinse lather repeat. I helped them with labor quite a bit on that one. Within 6 months (after foundation and well and septic obviously) the house was still rough but "dried in" and wired and plumbed, etc, and good enough to move into. they stopped paying rent then, and freed up even more cash monthly to put into materials. Two years later it was finished (two stories) and is quite nice. They saved many, many thousands of dollars, and have no mortgage, never paid one penny interest to anyone. Total time was a little over three years total to a paid off home on three acres, what's not to like? Ya, they had to live semi-rough for awhile, so what? You are still young, it won't hurt you. You'll look back and be proud of yourself, both from the way you did it and from the perspective of how much cash you saved.
Hard currency. If you want to gamble in the market, go ahead, but put a large portion of any "extra" you have into hard metals. Don't listen to the nay sayers, it preserves wealth. It's a long term deal, just get some coins once in awhile and forget about them.
Have a garden, grow a lot of your own food, you'll save money at the grocery store and also with doctor visits in the long run.
"Get into" alternative energy. Obviously you'll probably start with "normal" grid supplied electricity, but make a concerted effort to start making *some* of your own power while learning to use less power overall by wise decisions in purchases and how you use power. Keep adding to both sides of that equation, eventually you'll be independent, and have one more major important "bill" paid off rather than "financed" all the time.
Pay cash for used car, and keep it maintained well. Skip the flash, cars are transportation. One of my vehicles has well over 300 thou now on it, I changed the oil a lot, that's it.
Keep in mind anytime you can eliminate the transfer of "dollars" to get what you want it means less taxes and more of those dollars you get to keep, and less you have to make just for your day to day living. NEVER assume your "job" will always be there. Swell if it is and you keep getting "more", but it's nice to make that first layer of living as inexpensive as possible and as paid off as quickly as possible. In the long run then all you'll really have to sweat is property taxes and normal maintenance. Some of the exposure and risk can be mitigated by using what is called a family trust for that property,look into it, and a lot of the maintenance costs can be mitigated by building an INTELLIGENT home in the first place.
And don't forget the other monthly "bills", another random example, burning wood for heat (primary or very decent auxiliary) in the winter that comes off your own woodlot, starts to add up after a few years in savings and will always be there for you.
And you can do all this and more and still stay completely geeky and high tech, in fact, most of the alternative ways to live now are intimately tied to efficient use of high tech, think "amish with technology", it's that mindset that's important. They have really good alternative housing designs now, strawbale, cordwood/masonry, various domes, even the old "log cabin" techni
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