I have always believed that reading great books shape your thoughts. I enjoy reading all kinds of books and especially ones that have important lessons in personal finance. Below are my three favorite books on money, personal finance and savings.
1. It’s Not What You’ve Got: Lessons for Kids on Money and Abundance by Dr. Wayne Dyer
Dr. Wayne Dyer, a well-known motivational speaker has written several books on positive thinking and self-actualization for us grown-ups. He has also targeted young audience with “It’s Not What You’ve Got: Lessons for Kids on Money and Abundance.” As a parent, I want my children to learn the importance of financial discipline. Needless to say, before sharing this knowledge with my children, I read it and enjoyed thoroughly. This book is more for adults than for children and indeed a best gift you can give to your children. A must read for anyone who wants to find meaning in money and here are my three takeaways from this book.
- I only spend money that I have (I will not use my credit card for buying shoes, clothes etc.).
- I will always be proud of money that I earn (I will not keep a tab on others’ earnings).
- Every job I do is important (I will work harder and get luckier).
2. Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money — That the Poor and Middle Class Do Not by Robert Kiyosaki
This is another great book on personal finance and growing your wealth. Robert Kiyosaki is an investor, entrepreneur, financial commentator and an advocate of financial literacy. The advice given in this book breaks the conventional thinking patterns we have been exposed to for years. A must read for someone who wants to attain financial freedom. Here are my three takeaways from this book.
- All of you were given two great gifts: your mind and your time. It is up to you to do what you please with both. (Use your time on increasing your net worth).
- Whenever you feel ‘short’ or in ‘need’ of something, give what you want first and it will come back in buckets (Give value to receive value).
- Just know that it is fear that keeps most people working at a job. The fear of not paying their bills. The fear of being fired. The fear of not having enough money. the fear of starting over (Follow your heart and passion and do not worry about money).
3. The Total Money Makeover: A Proven Plan for Financial Fitness by Dave Ramsey
Dave Ramsey, one of my favorite authors has unlocked a secret code for financial fitness in his classic book “The Total Money Makeover: A Proven Plan for Financial Fitness.” This book condenses the financial wisdom of Dave Ramsey in easy to follow steps and makeover plan to get rid of debt by recognizing some of the myths about money. This is a great read. Here are my three takeaways from the book.
- We live in a cause and effect world. What you sow, you will reap. (It is indeed true not only with our financial habits but all the habits we embrace in our life.)
- When times are booming, you can do dumb things with money, get sloppy and take huge risks without realizing it. (It is important to save money and invest your savings even when you are on top of the game.)
- Winning at money is 80 percent behavior and 20 percent head knowledge. (For attaining financial freedom, you don’t need to have the knowledge of all the tools, but by taking few right steps, you can save a lot).
For beginners, the world of investing is mesmerizing and yet intimidating. If you are looking to create wealth in short period of time, equity is the best asset class and you need to invest in the stock market. However, it is important to get some experience in the investing world before you are ready to dabble in the stock investment. If you are new to investing and still want to make some small gains, the best option for you is mutual funds. There are different kinds of funds available according to the life stage and investment horizon a person is looking at. There are money market funds and investment grade funds for risk takers. Then, there are tax-exempt funds and balanced funds for people who are targeting retirement in a few years. So, it totally depends on your life situation. Here are three reasons for investing in mutual funds.
Many people consider mutual funds as conservative and low risk products. However, they are not very conservative, yet they reduce the risk to a large extent. If you have a low risk appetite and rightly so because you are investing for the first time, it is important to shift the burden and instead of investing in stocks, where the risk is too high to low risk products such as index funds such as Vanguard index funds.
You know, the number one thing that one needs to learn in investment 101 is asset allocation and rebalancing. It is not easy to master these skills, it comes with experience but you need time to do that. It requires discipline as well. If you are time impoverished or lack the financial knowledge, it is better to invest in a mutual fund, where you get an expert support in asset allocation. There are several funds like Vanguard, PIMCO etc. that are considered best and allocate and rebalance your assets to maximize your returns.
Diversification is another important part of the success of financial investors. In fact, diversification is the key to combat the volatility of the market. The mutual funds invest your money in different asset classes and within the same asset class, they diversify across different sectors. This helps to give you a risk adjusted returns. A new principle in investing is “don’t keep all the eggs in one basket.”
However, at the end of the day, it is the quality of your investment that matters. There are some fund houses that may not be reliable. So, the good thing to start with is big names like Vanguard small cap and mid cap funds. These funds are doing well for past few years.
I have always believed that your life is the sum total of what you have read so far, because what you read is reflected in your thinking and action. It is my personal belief that a few words of wisdom or daily quotes by successful people go a long way in inspiring to change your habits and forge the new and better ones. Here are my top 10 favorite quotes (from great minds) on financial wisdom.
- “Beware of little expenses. A small leak will sink a great ship.” —Benjamin Franklin.
- “A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.” — Suze Orman.
- “Wealth consists not in having great possessions, but in having few wants.”—Epictetus.
- “The only way to permanently change the temperature in the room is to reset the thermostat. In the same way, the only way to change your level of financial success ‘permanently’ is to reset your financial thermostat. But it is your choice whether you choose to change.”—T. Harv Eker.
- “Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones.”—Benjamin Franklin.
- “I believe that through knowledge and discipline, financial peace is possible for all of us.”—Dave Ramsey.
- “All money is a matter of belief.”—Adam Smith.
- “Sweat equity is the most valuable equity there is. Know your business and industry better than anyone else in the world. Love what you do or don’t do it.”—Mark Cuban.
- “The German root word for “debt” is the same as for “guilt.” —Dave Ramsey.
- “Money is usually attracted, not pursued.”— Jim Rohn.
Are you an ant or a grasshopper? Well, you all might have read this famous Aesop fable about “the ant and the grasshopper.” This fable has moral implications for people of all ages and these virtues come in handy for financial planning as well. So, if you are managing your finances, you better be an ant and start planning today to create the financial future you desire. Don’t be sorry later like the grasshopper in the fable. It is not the case, that you are not working hard to save, but you need to act at the right time and make some important decisions when opportunity knocks. When you are in thirties, you seem to care less about financial planning because you think you still have some more time to think about financial planning. This is the biggest mistake people make. So, here are a few tips for financial planning.
Assess your Life Stage
Whether you are in your late twenties or early thirties, saving even a small amount can be a game-changing decision later. Whether your aim is to retire happily or you are planning to send your children to Ivy League school, it is important to assess your current and future needs on a regular basis. Therefore, financial planning and saving is as much important for a young professional as it is for a Gen-Xer (Generation X). It is just that the needs of these different generations are different, but the goal is same and that is to achieve financial freedom.
Everyone seems to be asking this “how much is too much?” when it comes to savings. According to financial experts and economists, you need to literally force yourself to save enough to meet your financial goals at every stage of your life. Most experts suggest a magic number of 10% of pre-tax income, which will end your financial woes. However, if you cannot make a huge change, start with 5% and slowly add up to 10% or more. So, no saving is small so long as you are getting into a discipline of saving.
Automate your Investments
Saving money to meet your current and future needs is not enough, you need to invest that amount in order to build wealth. In his book titled “Automatic Millionaire”, David Bach suggested pre-established or automatic plans are the number one wealth building strategy. Whether it is 401k or 529 savings plan, set up an automatic investment plan, so that you can control that urge to splurge and start building wealth.