From time to time I will get questions from clients about book recommendations to help expand their financial knowledge. Below is a short list of some of my favorites that I have read on the topic. They are all easy to understand without much background in finance. Add some of these to your summer reading list and enjoy!
The Richest Man in Babylon
This is a timeless classic by George S. Clason, written almost a century ago. Quite a short read – it can be completed in a couple of hours. If there is any book that concisely lays out keys to being financially successful, this is it. Although times have changed, the basic principles of money have stayed constant.
Clason illustrates each financial lesson with a parable, set in ancient Babylon. The concepts taught include:
- Invest at least 10% of your income.
- Live on 90% or less of your income.
- Invest in things that will provide income and reinvest dividends to take advantage of compound interest.
- Seek advice from those who are competent in the areas you wish to invest.
- Properly insure against losses.
- Continue to learn and increase your earnings potential.
Really, this is probably the only book anyone needs to read to learn what they should do to reach financial independence. There is no secret sauce – just hard work, discipline, and some common sense. Would definitely recommend anybody and everybody read this book, especially if you are looking for a simple, easy to follow set of guidelines for achieving financial success.
The Millionaire Next Door
This is a great book based on the academic research of the authors, Thomas J. Stanley and William D. Danko. In the early-mid 1990’s, they set out to discover more about millionaires. Millionaires are individuals (or households) that have a net worth of $1 million or greater. Earning $1 million or more per year does not equal wealth, although it can help one accumulate wealth faster than people earning less. The goal of their research was to uncover some common themes and traits millionaires possess.
Their discovery was, at the time, somewhat shocking. Many people who earn high incomes are not wealthy. People wo earn a lot, tend to spend a lot and don’t end up saving much. Many high income earners turn into high consumers, rather than accumulators of wealth.
Most millionaires don’t drive fancy cars. They don’t live in expensive neighborhoods. Millionaires live frugally and have rather simple lifestyles. They budget carefully. Half of them own businesses. Most are first-generation rich (ie, self-made) – those that inherit wealth tend to piss it away.
The millionaires in America and the rest of the world follow the guidance laid out in the first book on this list, The Richest Man in Babylon.
Simple Wealth, Inevitable Wealth
In its fifth edition, last revised in 2013, author Nick Murray describes how to be a successful investor. This isn’t what you think of when searching for “how-to” books. There isn’t a special trick that you must learn. There isn’t one type of investment that will make you rich if executed correctly. Building wealth takes time, discipline, and patience.
Murray really drills down into the biggest pitfall investors face: themselves. Controlling your own behavior is the key to building wealth and avoiding the financial mistakes many make. He encourages readers to ignore fads and not panic when the stock market is in a nosedive.
Murray also stresses the importance of working with a quality financial advisor to help guide you and coach you through your investment journey, so you don’t make The Big Mistake. When left to their own devices, people are very bad at controlling their emotions when it comes to investing. Work with an advisor to set goals, establish a plan, and stick to it.
The Behavior Gap
This New York Times bestseller was the first book by author and financial planner, Carl Richards. He describes the “behavior gap” as the space between what we should do and what we actually do. Humans are physiologically wired to act in ways that are completely counterproductive when it comes to investing. Richards, just like Nick Murray, is trying to help us bridge that gap.
Some of his recommendations include:
- Don’t buy high and sell low (duh…but easier said than done).
- Invest more wisely.
- Avoid generic financial advice – there is no one-size-fits-all.
- Stop spending time and money on stupid stuff.
- Set financial goals.
The One Page Financial Plan
This is Carl Richards encore to The Behavior Gap. Today, we are in an age of information overload. You can read dozens of books on financial planning, follow numerous blogs, watch the news, and still feel lost. People don’t have time to sort through all the noise, or read and implement a 50 page customized financial plan. People want simplicity when it comes to their finances. Those that are most financially successful, tend to keep their finances simple.
Like the title indicates, you can create a financial plan in one page. All of our decisions about money revolve around us trying to achieve what is important to us. So in one page, you can prioritize the few things that are most important to you and how you are going to accomplish those goals.
Money: Master the Game
This 700 page behemoth of a book by Tony Robbins (yes, that Tony Robbins) is actually a pretty good guide to managing your finances. Robbins interviewed some of the greatest minds in the investment world to try to create a blueprint for financial and investing success.
While the previous books in this post focus primarily on financial planning, this book also hones in on investing quite a bit. Just like the other recommended titles, Money: Master the Game doesn’t have a special recipe for the perfect investment out there. Although he does dive into Ray Dalio’s “All-Weather” portfolio that has apparently been successful in the past in both up and down markets. But past performance is no predictor of the future and this particular portfolio may not be appropriate for everyone.
Robins advocates financial education – the more you can learn yourself, the better off you will be. He also recommends working with a trusted financial advisor to aid you in your financial and investment decisions. He discusses what to look for in a financial advisor and how to spot and avoid the snake-oil salesmen.
The one thing I don’t like about this book is there is a lot of self-promotion in it. Robbins is a very successful businessman with a great rags-to-riches story. He is invested in many businesses all over the world and directs readers towards some of those entities throughout the book. Not necessarily a bad thing, but carries a bit of a bias. Despite that, it is still a very good read.
Some Common Themes
All of these books seem to gravitate towards the same themes. They advocate financial literacy and education. Planning and goal setting is of utmost importance. Managing ones behavior is as crucial to investment success as anything else. Living below your means and making a commitment to investing for your future are also key concepts.
I have read all of these books myself and this is the short list of what I would recommend to anyone looking to become more knowledgeable about their finances and get on the track towards financial independence.
These are the opinions of Corey Janoff and not necessarily those of Finity Group, LLC or Cambridge Investment Research, Inc. None of these books should be considered as individualized financial advice. Consult your financial advisor before implementing any financial or investment strategy.