"Money Talks! Mine always says, 'You want to go to the book store today?'" - Pin Quote
Just before vacation, I finished two finance books. They were "Smart Money, Smart Kids" and the book title, "Buying a House Debt Free: Equipping your Sons." On vacation, I continued the theme by reading four more finance books. "The Millionaire Next Door", "The Millionaire Mind", "Complete Guide to Money" and "How to Make More Than Enough."
There were several things that made me crack up in regards to a few things that Dave Ramsey said in this book. One was this, "We Americans love cars.... Think about how much the average American spends on car payments over his life-time. If you invested the average Americans car payment of $464 a month in a good mutual fund every month from age thirty to age seventy, you'll end up with more than $5 million. Now, I love nice cars, but I've never seen one worth 5 million."
In general, I just think Dave Ramsey's financial steps are simple and laid out well for people. (1) Put $1000 in a beginner emergency fund. ($500 if your income is under $20,000 per year.) (2) Pay off all debt using the debt snowball. (Snow balling is listing smallest debt amount first down to the largest debt bill. Pay off the smallest debt. Then, put that money to the next debt on the list. He explains that yes mathematically it is better to pay the largest interest off first instead of paying the debts off by the lowest amounts but he says if a person was doing math they would not have gotten into debt anyway! He says, "Debt is 80 percent behavior. 20 percent head Knowledge." (3) Put three to six months of expenses into savings as a full emergency fund. (4) Invest 15 percent of your household income into Roth IRAs and pretax retirement plans. (5) Begin college funding for your kids once you take care of you starting your way toward retirement plans. (6) Pay off your home early. (7) Build wealth to give. He says, "He believes tithing through all steps."
(2.) My favorite book of the lot was "The Millionaire Next Door". The book is by Thomas Standley and is on Dave Ramsey's favorite library list. This books reminds me of the timeless classic book "The Richest Man in Babylon" which demonstrates principals from a older era. You can hear it in audio recording on youtube. "The Millionaire Next Door" is a modern day book which is based off of research that expanded several decades on those people who have Millions in net worth, not those necessarily who make Millions in income. So, the book reads more in a scholarly content style, which I enjoyed! This scholarly style is a deterrent for those who base their ideas on fluffy news articles without a lot of grit. This books focuses on the habits of those who have Millions in net worth but had an average American salary so it dispels the myths in lifestyles. The principals in this book are based off of the Bible and in my opinion fly in the face of the American hyper consumerism economy. The simple principal of basing your life on hard work and not "keeping up with the Jones".
I could spend several post talking about all the interesting tidbits that I though were interesting. But, I felt the simple rule of thumb to find a adequate way in computing ones expected net worth was worth to note. It is this: "Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This number, less any inherited wealth, is what your net worth should be." (If you are a homemaker and do not work out side the home. You do your husband the main income provider's age and salary to represent your household.) To calculate your net worth wealth you add your house, cars, any land, the amounts your investments all together. Then, minus your debt, the amount of money you owe to anyone from your net worth total. The ending total is your net worth. So, and example: Mr. Miller, age 50, income last year was $90,200. Mr. Richard's ending net worth total, as computed via the wealth equation, is expected to be $451,000. But, Mr. Richards is a prodigious accumulator wealth (not an average accumulator of wealth or even an under accumulator of wealth) as his net worth is 1.1 million. And average accumulator of wealth would be if Mr. Richards had just a little over the $451,000. If he had been under that net worth amount he would be known as under accumulator of wealth.
For this book they only studied those that had just above an average American salary. The quote from the book was this, "If you can generate a reasonable good income -- twice the norm for house holds in American, around 65K - then you can be a Millionaire next door. (If your salary is average he says you can also become a prodigious accumulator of wealth person as well. Average today is still equivalent to when the book was written. 33K)
Several of the things that I thought were cool is that most "Millionaire Next Doors" have been married only once or they had at least been married to a wife for 25 years. The Wife typically stays at home and while the husband plays offense with the money (that simply means he works and brings home the money) the wife plays defense (She typically is goal oriented in keeping the money in the home by couponing, menu planning, sale shopping, etc.) The Millionaire Next Door lives in a home less than 350,000k to $250,000. And their favorite vehicle is a Ford250 or a SUV. "All "Millionaire Next Doors" live on a budget! And all people who are considerably wealthy in their older years knew how much their family spends on each and every category in the budget!" The book also said that "Most millionaires measure their success by their net worth, not by their realized income!" They all believe that "for the purpose of wealth building, income doesn't matter that much."
(3) The Millionaire Mind is a book that gets into the mind of the Millionaires. It studies Deca - Millionaires! (Millionaire Next Door studies Millionaires. Millionaire Mind studies Deca-Millionaires!) This book focuses more on mind of the millionaire and how to expand their legacy to their children. The book speaks about the fact that by the third generation the Millionaire's children and grandchildren are hyper-consumers and not necessarily following in the Millionaire's footsteps. It shows the pit falls and traps that Millionaires get in with their children. It also compares Millionaire habits those that have net worth of millions and those that make incomes in the millions but lose the money.
(4) How to Have More than Enough is a book meant to be written in. It content is more on how to get your mind focus on your values, character, idea of discipline and learning to be patient with money. It focuses on being content with the money you have now. This is a good book for those that are in their 20s with very little vision in their values. But, other wise it would be more beneficial to pick up the "Complete Guide to Money", "Money Make Over" or "Buying a house debt free: equipping Sons."