This lesson in The Wealthy Barber covers investing and taxes. The author and his siblings are told by Roy, the barber, that to make good decisions regarding investments other than real-estate suck as stocks and bonds, takes knowledge, math skills, self-discipline, and intuition. He suggests seeking professional advice if you choose to do this. This may not be the best advice for some of the more savvy readers, but if you’re not sure or committed, then he provides another suggestion I like. If you happen upon a large lump sum of money, increase your regular contribution to your tax-advantaged savings until the lump sum is exhausted. Doing this puts dollar-cost averaging on our side, and we still have the found fortune.
The second part of this lesson is taxes. Again, the author suggests seeking professional assistance if you have special circumstances, such as being self-employed or owning a home, because of the complicated laws that allow for some helpful deductions.
The basic concept related to both of these lessons is “A dollar saved is two dollars earned.”
The fifth lesson in The Wealthy Barber by David Chilton covers “Saving Savvy.” This chapter is mostly about common sense. It’s diverse and briefly covers some down-to-earth concepts that I’ll list here for a quick overview.
- For obvious reasons, avoiding credit cards is to our advantage. After monthly fees and the high interest rate, as well as buying things we wouldn’t have bought if we had no credit card, we tend to lose a lot of money through using them.
- Instead, pay yourself first and plan for the purchase.
- By investing a little time shopping around, you can save a lot of money.
- It may be helpful to try to establish a budget.
- You should also consider a ‘household financial summary’ to discover what kind of hidden expenses you may not be aware of that are holding you back.
This lesson seems to be one of the longest in the book. It’s a very thorough lesson on the value of home ownership and does very nicely explaining a potential buyers options. Mr Chilton stresses that owning a home may not be for everyone. He states the importance of making sure you’re saving your 10 percent first and meeting your other financial obligations, including saving for retirement and protecting your estate with insurance, before committing to the purchase of a home. This has probably been the most comforting book supporting my decision to not immediately purchase a home. I’m not quite sure I’m ready for the financial impact. He states that while it’s not exactly all that much more, it does have considerable costs. He explains PMI, FHA and VA loans. For more about mortgages, he suggests The Common Sense Mortgage by Peter Miller. He discusses the advantages of condo ownership. He explains that it may not benefit to prematurely pay a mortgage, but also explains why a shorter term can save thousands. He makes it clear that if you’re obligated to move within the next one to two years then after fees and expenses, it may be more costly to purchase a home compared to renting. He explains the tax benefits of home ownership. With so much information, it’s easy to forget that the main lesson of this chapter is to carefully consider buying your own home and make an informed decision.
The third lesson from The Wealthy Barber is to make sure to take care of retirement. This is separate from paying yourself first. This is making sure that you’re able to afford your desired lifetime upon retirement.
David Chilton says it best in this quote:
Your years in retirement should be among the best years of your life, so you owe it to yourself to do everything possible now, without crippling your current standard of living, to enable you to enjoy them to the fullest.”
Chilton advises using IRAs, CDs, and 401k as vehicles in the financial planning for a wealthy retirement.
The second lesson in The Wealthy Barber is to protect your estate with an appropriate will and the correct quantity and type of life insurance. It covers this issue in two parts.
It explains the need for a will in an easy to understand no-nonsense format. It explaisn that with no will, the outcome of what happens with your estate may not be in your loved one’s best interest, and you probably know better than the court what should happen with your money. It explains why you should get one TODAY (no, I still haven’t).
The best part of this chapter deals with life insurance. In my experience, this has been the best explanation of how to decide how much life insurance anyone will need. It tells you who you need insured. It tells you if you have no need for life insurance. I never expected to find this in this book, but I’m really glad I picked it up. I didn’t expect to enjoy the chapter even, but the lesson has been very valuable.