ISBN: 0761147489 READ: February 2016
This is the perfect book for a 20 something like myself to learn the basics of personal finance. It really nails down the fundamental strategies of how to manage your money so you can have the means to do what you want later in life. Although it is written from an American point of view, some quick google searches can help you quickly translate terms such as 401k(RRSP) and Roth IRA (TFSA) so that you can get the most from this funny and informative book.
People love to debate minutiae
Abundance of information can lead to decision paralysis, a fancy way of saying that with too much information, we do nothing.
the single most important factor to getting rich is getting started.
Its okay to make mistakes
Ordinary actions get ordinary results
There’s a difference between being sexy and being rich.
Spend extravagantly on the things you love, and cut costs mercilessly on things you don’t.
Credit has a far greater impact on your finances than saving a few dollars a day on a cup of coffee.
There are two main components to credit (also known as your credit history): the credit report and the credit score.
Why are your credit report and credit score important? Because a good credit score can save you hundreds of thousands of dollars in interest charges. How? Well, if you have good credit, it makes you less risky to lenders, meaning they can offer you a better interest rate on loans.
It’s fine to be frugal, but you should focus on spending time on the things that matter, the big wins.
Avoid credit card offers you receive in the mail.
Cards from your bank have mediocre rewards. Rewards are important.
6 Commandments of Credit Cards
1. Pay off your credit card regularly.
2. Get all fees waived on your card.
– Always end your sentences with strength. Don’t say, “Can you remove this?” Say, “I’d like to have this removed.”
3. Negotiate a lower APR
4. Keep your cards for a long time and keep them active
5. Get more credit
6. Use your rewards!
Mistakes to Avoid
– Avoid closing your accounts (usually; its OK if you have no debt.)
– Manage debt to avoid damaging your credit score.
– Think ahead before closing accounts
– Don’t play the 0% transfer game
– Avoid getting sucked in by “Apply now and save 10%” offers.
– Don’t make the mistake of paying for your friends with your credit card and keeping then cash then spending it all.
Some people differentiate debts by calling them “good debt” and “bad debt,” depending on if the debt appreciates (education) or depreciates (car) over time.
70% of Americans carry a balance and fewer than half are willing to reveal their credit card debt to a friend. The #1 mistake people make with their credit cards is carrying a balance, or not paying it off every month. PAY YOUR DEBT OFF AGGRESSIVELY.
One overdraft fee at your crappy neighbourhood bank wipes out your interest for the entire year and makes you hate your bank even more than you already do.
I’m a big fan of online banks like ING Direct and Emigrant Direct because they offer simple banking with great rewards and almost no downsides.
Online high-interest savings accounts offer interest rates about six to ten times higher than you’d get at a brick and mortar bank.
There is one downside to having an online savings account: It can take a few business days to access your money.
I think of my checking account like an email inbox: All my money goes in my checking account and then I regularly filter it out to appropriate accounts, like savings and investing, using automatic transfers.
Think of savings account as places for short-term (one month) to midterm savings (five years).
Best checking account: Your local bank or credit union with no fees and no minimums
Best savings account: I would not encourage anyone to use a standard Big Bank savings account. Online savings account let you earn dramatically more interest with lower hassle.
If I’m lending money to a bank so they can re-lend it out, I don’t believe I should have to pay them additional fees.
Remember: with customer acquisition costs of more than $200, banks want to keep you as their customer. So use this information to your advantage, and next time you see any fees levied on your account, make the call.
“Compounding,” Albert Einstein said, “is mankind’s greatest invention because it allows for the reliable, systematic accumulation of wealth.”
Investing isn’t about picking stocks.
A drop in the stock market is a good thing for young people. It means investments are essentially on sale, so we can buy stocks for less now and then let our money grow for decades.
When people enter their forties, they suddenly realize they should have been saving money all along.
Of America’s millionaires, 80 % are first generation affluent, meaning their parents weren’t rich.
Retirement accounts offer you a deal: You promise to invest your money for the long term, and in exchange they give you huge tax advantages. Because the money you’re contributing isn’t taxed until you withdraw it many year later (this is called “pretax money”), you have much more money to invest for compound growth – usually 25-40 percent more.
Benjamin Franklin said, “Don’t put off until tomorrow what you can do today.”
“Track your spending! It’s so simple!” There’s only one catch: NO ONE ever does it.
Cheap people care about the cost of something. Frugal people care about the value of something.
Frugality quite simply, is about choosing the things you love enough to spend extravagantly on – and then cutting costs mercilessly on the things you don’t love.
A good rule of thumb is that fixed-costs should be 50-60 percent of your take-home pay.
A good rule of thumb is to invest 10 percent of your take-home pay for the long term.
Saving with a goal – whether its tangible like a house or intangible like your kid’s education – puts all your decisions into focus.
Some people spend less time thinking about their money because they’ve set up an automated system that frees them from having to worry. These people don’t work harder, they work smarter.
The key to taking action is, quite simply, making your decisions automatic.
Categories of spending:
– Fixed costs: 50-60% of take home pay
– Investments: 10%
– Savings goals: 5-10%
– Guilt free spending money: 20-35%
Money exists for a reason – to let you do what you want to do. Living only for tomorrow is no way to live.
If you invest in yourself, the potential return is limitless.
How rich you are depends on the amount you’re able to save and on your investment plan. The key takeaway here is to ignore any predictions that pundits make. They simply do not know what will happen in the future.
Most people don’t actually need a financial advisory – you can do it all on your own and come out ahead.
When it comes to investing, fees are a huge drag on your returns.
Mutual fund managers usually fail to beat the market and they charge a fee to do this. The safe assumption is that actively managed funds will too often fail to beat or match the market.
Lets be clear: If you’re not investing, in the long term you’re losing money every day. It actually costs you money to park your money in a savings account as inflation eats up your earnings.
Warren Buffet said, investor should “be fearful when others are greedy and greedy when others are fearful.”
Asset allocation is the most significant part of your portfolio that you can control.
On average the stock market returns about 8% per year.
The advantages of bonds are that you can choose the term, or length of time, you want the loan to last and you know exactly how much you’ll get when they pay out (mature).
The only way you would lose money on a government bond is if the government defaulted on its loans – and it doesn’t do that. If it runs low on money, it just prints more. Now that’s gangsta.
It is important to diversify within stocks, but its even more important to allocate across the different asset classes – like stocks and bonds.
Although it may seem counter intuitive, your portfolio will actually have better overall performance if you add bonds to the mix. Because bonds will generally perform better when stocks fall, bonds lower your risk a lot while limiting your returns only a little.
Index funds are simply collections of stocks that computers manage in an effort to match the market.
Lifecycle funds, also known as target-date funds, are my favourite investment because they embody the 85 % solution: not exactly perfect, but easy enough for anyone to get started and they work just fine.
Lifecycle funds aren’t perfect for everyone because they work on one variable alone: age.
If you’re picking your own index funds, as a general guideline, you can create great asset allocation using anywhere from three to seven funds.
The first thing you want to do when picking index funds is to minimize fees. Really anything lower than 0.75 percent is OK.
Dollar-cost averaging is a fancy phrase that refers to investing regular amounts over time, rather than investing all your money into a fund at once.
The pain people feel from losing $100 is much greater than the pleasure they experience from gaining the same amount. Don’t let the bear scare you. You can wrestle with him and come out ahead.
The best way to re-balance is to plow more money into the other areas until your asset allocation is back on track.
Invest as much as possible into tax-deferred account like 401(k) and Roth IRA.
Bottom line:invest in retirement account and hold your investments for the long term. Until your portfolio swells to roughly $100000, that’s all you need to know.
In your 20’s and 30’s, there are only 3 reasons to sell your investments: You need the money for an emergency, you made a terrible investment and is consistently under performing the market, or you’ve achieved your specific goal for investing.
Letting your parents manage your money is dumb.
Fundamentally there are two ways to get more money. You can earn more or you can spend less.
Basics of negotiating:
1. Remember, no one cares about YOU
– illustrate how much value you can add to the company. Show the boss how you’ll make him look good. Highlight how you’ll make the boss’ life easier bu being the go-to person he can hand anything to. The key phrase here is “Let’s find a way to arrive at a fair number that works for both of us.
2. Have another job offer- and use it.
3. Come prepared
– Call your contacts. Figure out the salary amount you’d love, what you can realistically get, and what you’ll settle for. Literally bring a strategic plan f what you want to do in the position and hind it to your hiring manager.
4. Have a toolbox of negotiating tricks up your sleeve.
5. Negotiate for more than money
– Discuss whether or not the company offers a bonus, stock options, flexible commuting, or further education.
6. Be cooperative, not adversarial.
8. Practice negotiating with friends.
9. If it doesn’t work, save face.
5 Things You Should Never Do In a Negotiation:
1. Don’t tell them your current salary.
2. Don’t make the first offer
3. If you’ve got another offer from a company that’s generally regarded to be mediocre, don’t reveal the name.
4. Don’t ask YES or NO questions.
5. Never Lie.
When it comes to saving money, big purchases are your chance to shine.
Understand how much you can afford, pick a reliable car, maintain it well, and drive it for as long as possible.
If possible, buy a car at the end of the year, when dealers are salivating to beat their quotas and are far more willing to negotiate.
Buying a house is the most complicated and significant purchase you’ll make, so it pays to understand everything about it beforehand. I mean everything.
Houses are primarily for living in, not for making huge cash gains.
Let me be crystal clear: Can you afford to least a 10 percent down payment for the house? If not, set a savings goal and don’t even think about buying until you reach it.
Finally will you be able to stay in your house for at least 10 years? Buying a house means you’re staying put for a long time. The longer you stay in your house the more you save.
You economist Robert Shiller found that “from 1890 to 1990 the return on residential real estate was just about 0 after inflation.
Lets get rid of the idea that renters are “throwing away money” because they’re not building equity. Any time you hear cliches like that beware. Its just not true.
I’m conservative when it comes to real estate. That means I urge you to stick by tried and true rules, like 20 percent down, a 30 year fixed rate mortgage and a total monthly payments that represents no more than 30 percent of your gross pay.
Tips for buying a house:
1. Check your credit score
2. Save as much money as possible for a down payment.
3. Calculate the total amount of buying a new house.
– remember that the closing costs including admin fees and expenses are usually between 2 and 5 percent of the house price.
4. Get the most conservative, boring loan possible.
5. Don’t forget to check for perks
6. Use online services to comparison shop.
A rich life is about more than money.