This wraps up the last of the lessons from The Wealthy Barber, a book by David Chilton.
- When it comes to an emergency fund, pick one that’s appropriate, but you don’t have to exaggerate the amount. If your liabilities are greater or if your income is unpredictable, a larger one may be necessary. Consider current protection such as insurance when building your emergency fund.
- Saving for a child’s education can be tricky as there’s many different options and opinions vary on responsibility. Some parents leave the burden to the children. However, the cost of college is becoming increasingly more expensive, and often cant be funded solely by money earned during summer jobs. If a parent chooses to be willing and able to assist with college savings, there are many tax credits and tax deduction benefits. Consider a benevolent family member who could help. Another option, prepaid tution plans, may have restrict the choice of schools. There’s also education savings accounts and bacculaureate bonds. However, David Chilton suggests a different investment practice for college savings. He advises to use a well-selected equity mutual fund. This benefits in the usual ways of mutual funds, by having dollar-cost averaging, long-term ownership, and forced savings.
- Disability insurance is frequently disregarded, yet usually one of the most critical insurance needs. A staggering fact is that one of four individuals will be disabled for at least a one year period in their lifetime. When someone passes away, they need life insurance because they are no longer an asset to their dependants and the cash flow stops. The sad truth is that a disabled person becomes a liability, causing negative cash flow, which could be financially devastating. If you think you’re covered through an employer or an existing plan, double check the policy and make sure that it provides enough support to take care of your family. If you don’t have it, get it now.
- The last topic covered is staying informed. Money laws change frequently and new benefits and investment vehicles are constantly created. By making a plan using the practices suggested in the book, the plan should be successful in creating a wealthy and satisfying financial future, however events may occur prompting re-evaluation of a chosen strategy. Chilton’s suggested readings include Forbes, Kiplinger’s, Fortune, SmartMoney, and the Wall Street Journal. I advise to watch some TV shows, like Suze Orman and Jim Kramer‘s Mad Money. Listen to some NPR and Talk Radio that cover money advice. I also suggest subscribing to related RSS feeds and reading relevant blogs such as this one to stay current for a wealth of information.
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.