My views on money are constantly evolving, as they have been since I learned about money at a very young age. At various times in my life, my feelings on money have ranged from a tool to get something I wanted or needed, to a shiny object to pursue, to something that made me scared that I didn’t have enough of it, to a topic that I appreciated so much that I decided to pursue a career in measuring it, and everything in between.
As someone who enjoys the topics of money and personal finance, I’ve always enjoyed reading books on those topics to get different viewpoints and potential actionable steps that I can apply to my own financial life. Every so often, I will come across a book that causes a paradigm shift in my thinking about how best to use my money to get the most value, pleasure, and fulfillment out of my life experience. These books contain items that I still think about to this day and are books that we recommend to friends, family and our clients. Today, I wanted to highlight a few of these books: the impact they have had on my financial life, how I think the information in the books are useful to everyone, and what makes me the most excited about them.
Note: I have linked to the Amazon page for each of these books, however, these titles are all available at your local library for free.
I Will Teach You to Be Rich – Ramit Sethi
With a rather presumptuous title, I had opened this book thinking that Ramit would come across as a bit of a know-it-all, but the tone in the book is extremely relatable to Gen-Xers and millennials alike. He does a great job explaining financial topics in a way that is easy to digest and provides quick wins to get you started on the path to financial independence (ex. scripts you can use to ask your boss for a raise, or lowering an internet bill). He also provides a deep dive into money psychology that I have found very interesting, and has caused me to self-reflect on my own views on money.
The one item that has stuck with me about this book has been the rule to spend lavishly on the things you enjoy and the things you value, and to cut spending on the rest of the stuff that is weighing you down and is not bringing enjoyment to your life. At the first meeting with our coaching clients, we ask them to list five things that bring them joy and five things on which they value spending their money. The goal of this exercise is to be able to pinpoint those things on which we want our clients to spend lavishly, leading to what Ramit calls living your “rich life”. On the other hand, if we find that our clients are spending heavily on things that aren’t bringing them joy or fulfillment, we look to “trim the fat” from those areas to free up money to spend on those things they do value.
From a psychological perspective, one big topic the book covers is “money lenses”, which is defined as the way we view the world with our money. Ramit states that the most common of these lenses is Cost, but other lenses could include Value, Convenience, Security, Delight, and Experience, among others. We tend to have a default lens when it comes to money, but we are free to “try on” different lenses to see how it changes the way we think about the world. Picking a money lens of value over strictly cost, for example, could help us focus more on what we’re gaining (value) than what we’re giving up (cost) and help us look at money in a more positive light in this way.
Ramit recently began a podcast with the same title as this book. In each episode, he speaks with couples of various backgrounds about the issues they are having with their finances. In almost every case, the root cause of the financial issue goes much deeper than the actual dollars and cents, or any magic number that they just haven’t reached quite yet. I would recommend the podcast to everyone reading this, but would especially recommend it to couples. Some couples may relate to financial issues that are brought up in the episodes and may learn about a different way to think about tackling the issue. Similarly, these episodes could be good icebreakers for new couples to discuss their feelings on money to learn about their compatibility in that department.
The most common complaint that we hear about investing is that it’s too complicated, overwhelming, too much of a gamble, or that people just don’t know how to begin. We always refer anyone who feels that way to read The Simple Path to Wealth by J.L. Collins. The book is a re-work of an investing series he had posted to his website (jlcollinsnh.com) years before. The specific audience he had in mind for these posts was his own daughter, who he admits is not obsessed with money or investing herself. He wanted to leave behind for his daughter the easiest and most effective way to invest based on his own investing experiences. As it turns out, his advice is the most effective way for everyone to invest, not just for people that don’t care about investing all that much (like his daughter), but also for those who enjoy “playing the market”.
Mr. Collins investing advice revolves around the work of Jack Bogle, who was the founder of Vanguard and the man most credited for bringing low-cost index funds to the masses. Bogle surmised that investors would be better off paying low fees on their investments as to not erode their gains, and that since it is very difficult to determine which particular companies will drive the growth of the stock market, people should be able to easily invest in the entire market. In this way, investors will have a seat at the table when a yet to be determined company takes off and can share in the benefits of that growth. On the other hand, if a company begins to falter, it will be dropped out of the portfolio with no action needed on the part of the investor.
As a sports fan, I like to use this analogy with index fund investing: Using the same odds, would you rather bet $100 on a particular team to reach the Super Bowl this year, or would you rather bet $97 that the Super Bowl will take place this year at all? The $97 in this analogy represents the close to 97% of money managers that do not routinely generate greater returns than stock market index funds over the long-term, and that number is likely skewed by survivorship bias. Would you rather put all your money on one particular team, or for a couple dollars less bet on all the teams?
In addition to that main concept, Mr. Collins describes his simple investing method, which is putting the vast majority of his investing portfolio into the Vanguard Total Stock Market Index Fund (VTSAX). He also dives into why this method has been so effective and why it will likely stay that way in the future, and also what has happened when he’s veered off that strategy in the past. While we are not financial advisors, we like to point our clients to the strategy used by Mr. Collins as it is both low-effort and highly effective in generating great returns in a low-cost, tax-efficient manner.
This is a book that will really make you analyze your daily routine and challenge those habits that have become autopilot. Your Money or Your Life by Vicki Robin examines the concept of trading your “life energy” for money and whether the juice is really worth the squeeze in your daily life. It advocates for a simpler, more minimalist and lower-costing way of living to get the most out of that life energy.
One of the more memorable illustrations of this concept relates to what they call the “true hourly wage”. Say a person’s wage is $25 per hour. We already know that this is not what is truly reflected in this person’s paycheck due to taxes, so this becomes closer to $20 per hour. If the person drives to work, the gas and wear and tear on your vehicle might end up taking another few dollars off per hour. Then comes the customary work clothing, the convenient meals and coffees taken while at work, paying for services around the house like cleaning and pool maintenance, daycare and other forms of childcare, and pretty soon the true hourly really starts to get whittled down. So when the true price of work ends up being whittled down to around $10 per hour, the questions then become: am I willing to do this work for $10 an hour or less because it aligns with my values and brings me fulfillment?
This book aligns with the mission of Mindful Cents of aligning finances with those values and what brings fulfillment. It also professes the same end goals that Mindful Cents has for all of our clients, which is financial freedom and financial independence.