3 TRANSFORMATIONAL BEGINNER-FRIENDLY PERSONAL FINANCE BOOKS

3 TRANSFORMATIONAL BEGINNER-FRIENDLY PERSONAL FINANCE BOOKS

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As the saying goes, knowledge is power.

TAKE CONTROL OF YOUR PERSONAL FINANCES

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Since time immemorial, people have used knowledge to conquer nations, make tremendous advancements in numerous fields such as medicine, technology, aviation, etc. Best of all, knowledge can never be lost.

Books can be a rich source of information to quickly increase your depth on any subject and at a relatively small cost. Knowledge acquired from books can advance and transform your finances, relationships, and life in general.

Financial literacy is simply a must if you are looking to start building wealth and achieve financial independence. This article will explore three of the best beginner-friendly personal finance books out there.

Without further ado, let’s dive right in.

Personal Finance Books

Book #1: The Millionaire Next Door: The Surprising Secrets of America’s Rich by Thomas J. Stanley and William D. Danko

Who are the millionaires? Is it the residents of enormous mansions in the exclusive Scarsdale in New York or Forest Hills in Toronto?

The findings of a survey conducted on more than 1,000 wealthy participants by this book’s authors revealed that most of America’s wealthiest people do not live in the highly affluent neighbourhoods. In fact, they do not look, dress, eat, or act like millionaires.

So who is the prototypical American millionaire?

5 Key Traits of a Millionaire According to the Book’s Findings

  • Live below their means. They wear inexpensive but high-quality clothes. Very few of them drive current-model-year cars. And about 50% have lived in the same house for more than 20 years.

  • Reasonably well educated and believe in the importance of a good education. About four in five are college graduates, and as a group, they tend to spend heavily on their children’s education.

  • Fastidious investors. Millionaires typically invest 20 percent or more of their household realized income each year. They invest for the long-run and make their own investment decisions.

  • About two-thirds are self-employed. Seventy-five percent of the self-employed millionaires are entrepreneurs, and the remaining are self-employed professionals, such as doctors and accountants.

  • The majority (about eighty percent) tend to be first-generation “self-made” millionaires.

5 Key Takeaways from the Millionaire Next Door

  • Income does not equate to wealth. The authors compare millionaires to high-income spenders. Contrary to popular beliefs, wealth does not refer to an abundance of material possessions. Instead, wealth is a measure in the amount of appreciable assets owned, such as stocks, bonds, income-producing real estate, private businesses, etc.

  • Wealth results from hard work, lifestyle decisions, planning, and self-discipline. It not due to luck or inheritance. The authors discovered that most millionaires choose their occupations thoughtfully, are frugal and invest in financial literacy.

  • Building wealth is a long-term game. Most of the millionaires studied were not over-night successes. The process of becoming wealthy is often slow and takes years of perseverance, planning, and self-discipline.

  • Freedom and security are more important than displaying high social status. The authors discovered that the wealthy prioritize their financial freedom over a high social rank. Further, despite their simpler lifestyles, the millionaires generally tend to be happier than non-millionaires with a high-consumption lifestyle.

  • Enjoy what you do. As illustrated in the book, most millionaires tend to be self-employed and are passionate about what they do. Steve Job’s famous quote points this out well, “the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.”

Conclusion

The Millionaire Next Door uses many real-life stories that make this book truly inspiring. It is an excellent read for those with an unhealthy relationship with money. Moreover, this book demonstrates that anyone can achieve the million dollar net worth with the right mindset regarding wealth.

Have you already read The Millionaire Next Door? If so, did you like it, and what were your most profound take-aways from the book?

Book #2: The Richest Man in Babylon by George S. Clason

George S. Clason wrote The Richest Man in Babylon in 1926.

The book begins with the story of a wealthy man in ancient Babylon named Arkad. He was, in fact, the richest man in Babylon. On observing Arkad’s growing riches, two of his childhood friends approached him to find out how he had become so wealthy, and they had not. The two friends worked hard, yet they could barely feed their families.

The Richest Man in Babylon consists of many parables and short stories like this based on the ancient Babylonian principles. The lessons are resoundingly still relevant today. Some even refer to this book as “the Bible of financial freedom.”

The book is about building wealth. It seeks to address why some people acquire much wealth while others, equally hard-working, seemingly cannot do so.

10 Key Takeaways from the Richest Man in Babylon

1. Start thy purse to fattening

The most effective way to start building wealth is to pay yourself first. Paying yourself first is a strategy often recommended in many personal finance books, and with excellent reason. It ensures that you prioritize saving and investing before expenses and discretionary purchases.

The book recommends setting aside one gold coin for every ten earned, equivalent to a savings rate of 10%.

Today, you can pay yourself first by automatically routing a specified savings amount from each paycheque at the moment it is received. According to Arkad, this would be the surest way to start thy purse to fattening.

2. Control thy expenditures

Living below your means is another popular yet sound personal finance strategy. If not careful, it is far too common to fall into lifestyle creep. The lifestyle creep phenomenon occurs when expenditure on non-essential items increases as one’s discretionary income grows.

What makes lifestyle creep so dangerous is that it happens gradually and unnoticeably. And before you know it, you are paying for subscriptions that you barely use or living in a bigger house than you need.

The best way to control thy expenditures and keep lifestyle creep in check is to create a budget. As Dave Ramsey aptly puts it, a budget is simply telling your money where to go instead of wondering where it went.

3. Make thy gold multiply

Arkad advises to make your treasure, its children, and its children’s children work for you. He emphasizes that savings are a start, and the earnings from those savings can build a fortune. Simply put, invest to tap into the power of compounding.

As you work hard for your money, make sure that it is also working hard for you.

Personal Finance Books

4. Guard thy treasures from loss

At one point or another, we have all succumbed to poor financial decisions. Commonly, making purchases that we ended up regretting sooner or later. Or sometimes, a poor financial decision, could be making unwise investments.

While all investments bear some risk level, the book is warning about taking on undue risk that could cost you even most of your principal. This type of risk is worth it. The book further emphasizes seeking wise counsel and those experienced in the profitable handling of gold.

You can seek wise counsel through reputable financial advisors and investing in your financial literacy. According to Warren Buffet, the first rule of investing is never to lose money. The second rule is never to forget the first rule.

5. Make of thy dwelling a profitable investment

Regarding your home as an investment is one lesson from The Richest Man in Babylon that is quite debatable in today’s market environments.

Due to housing prices increasing faster than earnings, most people end up with mortgage payments for decades! Further, even after paying off a mortgage, a residential home requires maintenance, not to mention property taxes.

While a residential home can appreciate in value over time, the gains can only be realized when sold. And the recent mortgage crisis in 2008 showed that real estate capital gains are not guaranteed. You can learn more about the buying vs. renting a home debate here.

However, residential homes can become a profitable investment through house hacking. House hacking is a strategy that involves renting portions of your primary residence (such as the basement, extra rooms, etc.) to offset expenses.

6. Insure a future income

The author does not extensively elaborate on this point in the book. However, one can infer that the main point here is to plan for retirement while still young.

Investing is one of the most effective ways to ensure a comfortable and financially stable retirement. Learn more about planning and investing using the RRSP and TFSA retirement accounts.

7. Increase thy ability to earn

The best way to accelerate your journey to financial independence is to increase your earning power generally. The additional income will boost your savings, investments, and fuel the compounding on your nest-egg.

You can increase your ability to learn by investing in yourself to develop existing or new skills. For instance, you can read books, take classes, get relevant certifications, etc.

8. The goddess of luck favours men of action

Opportunity waits for no man, so goes the old saying.

The book argues that while success is not always guaranteed, it often favours those who take action.

Good opportunities are rare, and as such, you should seize them whenever they cross your path.

9. Gold slippeth away from the man who invests in businesses or purposes with which he is not familiar.

This lesson emphasizes not putting your investments in assets that you do not understand. It is closely related to the lesson on guarding thy treasures from loss.

FOMO (the fear of missing out) often leads people to buy popular investments that they do not understand. Cryptocurrencies such as Bitcoin come to mind.

As you would take your time to understand purchases such as houses or cars, always understand your investments.    

10. Pay off your debts.

The author recommends using the 10/70/20 budgeting plan. In this plan, 10% goes to savings, 70% to essential expenses, and 20% to paying off debt.

Today, there is a popular budget rule of 50/30/20 by Elizabeth Warren. It advocates spending 50% on needs, 30% on wants, and 20% on savings/investments.

Whichever plan you may choose to follow, make sure it allocates for paying down debt. Learn more about whether you should invest or pay off debt here, if you want to know which one to prioritize.

Conclusion

The Richest Man in Babylon is a quick read generously filled with timeless nuggets of financial wisdom.  None of the concepts discussed are particularly earth-shattering, but they are solid and can be called upon time and time again. It is a book that will serve anyone looking to build wealth very well.

Have you already read The Richest Man in Babylon? If so, did you like it, and what were your most significant take-aways from the book?

Book #3: Rich Dad Poor Dad by Robert Kiyosaki

Rich Dad Poor Dad was first published in 1997 and has since become a personal finance classic.

While it is light on the specific, actionable steps to building wealth, it succeeds in transforming mindsets regarding wealth management.

The main lessons from Rich Dad Poor Dad include:

  • Do not merely work for money; instead, have money work for you.
  • Money without financial intelligence does not last; therefore, invest in financial literacy.
  • Acquire income-generating assets instead of liabilities that look like assets such as residential houses, cars, etc.
  • Harness the power of corporations to protect your assets from excessive taxation legally.
  • Pay yourself first.

The mindset of managing risks and investments is the cornerstone of building wealth. Rich Dad Poor Dad will shift your money mindset, or at the very least, it will be thought-provoking. It makes for an excellent investment in your financial literacy journey.

Read our full review of Rich Dad Poor Dad here.

Have you already read Rich Dad Poor Dad? If so, did you like it, and what were your most profound take-aways from the book?

If you enjoyed this article or have any questions, please leave them in the comment section below! I’d love to hear from you! Also, please feel free to share this with anyone that may benefit from it.

“If you’re offered a seat on a rocket ship, don’t ask what seat. Just get on.” – Sheryl Sandberg

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Personal Finance Books

Sharing is caring!

TAKE CONTROL OF YOUR PERSONAL FINANCES

download-750x952

Ever feel like money just seems to slip through your fingers month after month? Our Monthly Budget Tracker will guide you to start making the most of every dollar. It’s a game changer—get it free for a limited time!

Nikki Kirimi

Nikki Kirimi is a finance professional (MBA, CPA, CMA) and the creator of Money World Basics. She enjoys acquiring and sharing personal finance knowledge to help people better their lives.