“Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.”
– Old English Proverb
Books are the fish of the information age…
I’d like to recommend the following books for the person beginning their financial life or are just starting to pay attention to their finances. I picked these books specifically because they were helpful to me. Often the best books are the ones which don’t necessarily tell us new information but, confirm what we already know.
Most people know the formula to be rich (Earn money, spend less than you make, then invest the rest and when your investments exceed your expenses you can do what you want to and you are rich.) This means there is a disconnect between the information and the actions that get the results.
There are good beginning financial books which have good frameworks. This means the concepts are sound and reproducible by the reader (although some specifics may be dated). Two examples of this are Dave Ramsey’s Total Money Makeover and David Bach’s The Automatic Millionaire. I would recommend Dave Ramsey’s book for people who are in deep debt. David Bach’s book I’d recommend for people with more of a handle on their finances but, could use some streamlining.
Dave Ramsey’s book has the great frame work in the Baby Steps. I’ll list them below but, do look them up in detail in Mr. Ramsey’s book.
- $1000 Emergency Fund
- Pay Off Debt
- 3-6 Months of Expenses in Savings
- Invest 15% of Income in Retirement
- College Fund for Children
- Pay Off Your House
- Build Wealth and Give
Additionally in Baby Step two he highlights the Debt Snowball framework which is:
- List all debts smallest to largest
- Pay the minimum on all debts except the smallest
- Pay any free cash towards the smallest debt until paid off
- Repeat for the next smallest debt, and repeat again until all debts are gone
David Bach’s book has a different style with his framework. His is more of a point to point action plan with a specific action at the end of each chapter. There are four main points which make this book worthwhile.
- Pay Yourself First
- The Power of Compound Interest
- The Cost of Little Expenses (Latte Factor TM)
- Automatic Fund Distribution
Included in the book is also direction on where to invest in IRAs of both types (Roth and Traditional). Although the book has been around for a while so it would be good to check with Consumer Reports on which brokerage firm ranks the best.
In addition to the two books on finance I would recommend the following:
The Richest Man In Babylon by George Samuel Clason. It was written in 1926 but the concepts are timeless.
It does include some framework as the Five Laws of Gold:
- Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family. (Save 10% of your gross earnings.)
- Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.
- Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling.
- Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep. (Educate yourself or rely on those who are educated in the investment you’re interested in.)
- Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment.
A great summary of the book is done by Fighting Mediocrity.
Also a book to consider if you can read Spanish is La Riqueza en Cuatro Pisos – Un Plan Para Construir Tu Independencia Financiera (Four Steps to Wealth – A Plan to Build Financial Independence) by Xavier Serbia. The four floors in the financial house are:
I also like the focus on steady progress the book has with invoking the fable of “The Tortoise and the Hare“. Proving a good parable is timeless.