I’m not saying that you should try to follow their path, as they’d certainly be considered outliers in the financial world. Instead, we can learn about their way of thinking, and apply it on a smaller scale in our own lives.

Here is what Forbes found out about the 657 self-made billionaires they studied:

• Many had parents with a high aptitude for math
• The most common professions are engineers, accountants, and small-business owners
• Nearly 2% worked at Goldman Sachs early in their career.
• 20% never completed college
• Those who made their money in finance are the most educated – 55% have graduate degrees, and 90% of MBAs got their masters from Harvard, Columbia, of University of Penn’s Wharton School of Business
• Several suffered “bitter professional setbacks” early in their careers, but consider them valuable learning experiences

There were a few other commonalities, but they’re too specific to really be applicable (unless you’re considering working at Goldman Sachs or joining a secret society like Skull and Bones).

Here’s what I’ll try to apply in my own life:

Education is key

Even though 20% didn’t finish college, they all know the value of a good education. Getting a degree is still the best ticket we have towards a lifetime of higher income – and job mobility. The skills we learn in college and on the job can be applied towards finance and entrepreneurship, and vice-versa.

Another takeaway is that a strong understanding of finance and economics is critical for success, regardless of what your career is.

It’s important to do your own thing

Many of these people left a successful career (or dropped out of college) to go into business for themselves. Even if you don’t start a business full time, there are always things you can do to supplement your income as well as broaden your horizons.

You learn more from your failures than your successes

The lessons you learn from mistakes and failures will stick with you more than any success. That’s why billionaires consider early failures something that helped them in the long run.

Failure early on is necessary condition for success, though not a sufficient one.

- Pharmaceutical tycoon R.J. Kirk

But the weird thing is – they’re on track to do it.  How? They’re not using any secret formula or investing scheme. They’re just extremely frugal, and are passionate savers.

Their story

John Rodrigues is a manager at Microsoft. His wife, Gina, previously worked at Wells Fargo and Country Wide, but recently went into business for herself as the owner of a boutique. Together, they make an impressive $174,000 a year.

In the beginning…

They met as teenagers, when Gina was working in a computer store that John frequented. Their relationship started to get serious when they were in college.

John’s grandfather paid for his first year of school, but after that, he was on his own. This seems to have been a defining moment in John’s life.

Instead of racking up tens of thousands in student loans, he decided to get a job and practice frugality. As a result, he got his degree without going into debt.

Gina on the other hand, racked up $5000 in credit card debt before she came clean to John. They paid it off with the commission she made from selling her first house.

Life after college

After graduation, they bought a condo for $377,000 that quickly appreciated to $535,000. Emboldened, they decided to start investing in real estate, buying three houses in Arizona and Texas.

In addition to real estate, they put 15%-20% of their income into stock and cash investments. By the time they were 24, they had already saved $70,000 for retirement.

Where they are now

They have become experts in the art of frugality. They sold their condo for a pretty profit, and started renting a home from their parents for $650 a month.

They spend $300 a year on clothes, rarely travel, and only go out to eat three times a month (at the most). They use the extra money well. Half of their income goes to savings and retirement.

John aggressively buys discounted Microsoft stock, and the rest goes to his 401K and a variety stocks and cash investments. As of August last year, they had $380,000 in stocks, mutual funds, and cash (I’m guessing the portfolio is worth a lot less now)

Lessons learned

They’re doing a lot right, but are not perfect.

A few years ago, John went to a financial planner. Instead of good advice, he ended up getting locked into a pair of variable life insurance policies. They were ripoffs,  and he had to pay $5000 to get out of them.

They recently went to a pair of more reputable planners, and got some feedback about what they’re doing right and wrong.

Here are the opportunities for improvement:

• Dump the company stock. John currently has 37% of his portfolio in Microsoft stock, which is far too much to have in a single company. It’s even more dangerous, because his income is also tied to Microsoft’s success.
• Add some bonds. Right now, 99% of their investments are in stocks, and only 1% in fixed assets. The planners suggested 10% in bonds, 90% in stocks.
• Sell some real estate. They’re actually losing $750 a month on their three rental properties. The planners recommended selling one or two or their properties, which would stop the bleeding, and could allow them to break even on their initial investment.

What’s next?

John and Gina want to buy a home again. It’ll be expensive in the San Francisco area, but it’s a good time for it. Plus I’m sure they have the money for a down payment, and the credit to get a good loan. They’re looking to spend $350,000-$450,000.

They’re planning on being millionaires by the time they’re 40. If they can do that, they’re going to not only retire from their current jobs, but stop working altogether. Their long term plans are to move to somewhere less expensive – like Arizona – and start a small farm.

As for the financial planners’ advice? John isn’t buying it.

John insists on keeping the Microsoft stock, even though he’s putting most of his eggs in one basket.

Frankly, I think it’s dumb to sell low. I think it’s a safe investment to hold until the market comes up.

Their adviser’s response?

I don’t care what the stock price is. To diminish risk, you need more diversification in your portfolio.

As for the real estate? John doesn’t want to sell that either.

I think those properties are going to come back eventually. Even if they don’t, our retirement plan is not based on any return from those properties anyway.

Will they make it?

Their planners estimate that if they keep their current path, by age 40 they’ll have… drum roll please… $2.9 million. While that may sound like a lot, it isn’t, considering that they want to stop working at age 40.

Even if they draw from their retirement fund at 3% (instead of the standard 4%), they’ll run out of money at age 80.

My thoughts

I’m very impressed with how dedicated they are. It’s not easy to only eat out three times a month. It’s incredibly difficult to save half of your income.

However, for as dedicated as they are, they’re not always making the smartest decisions.

First, most of their portfolio and earning power is tied to the success of one company. Granted it’s Microsoft, but still, it’s dangerous to have your livelihood and retirement in one basket.

And I’m guessing John is incredibly intelligent, but could use some more work when it comes to his financial education.

He bought three properties – out of state – at the height of the bubble (partially because friends were doing it). Now he’s losing $9000 a year on properties, but refuses to sell, even though they’re not part of his financial plan.

He fell for the schemes of a shifty financial advisor, which I can sympathize with. But then he goes to advisers that he trusts, and refuses to listen to their advice.

Also, by retiring so early, he is giving up on the power of aggressive investing and compound interest. When they stop working, they’ll have to invest much more conservatively. Also, their portfolio will start losing money, instead of compounding every year.

Some people might criticize his frugal lifestyle, but I see it as an investment. However, by retiring so early, it seems like he’ll never really get to enjoy himself.

I don’t mind working hard and scrimping now, but it’s nice to know I won’t always have to. I like being able to do the things that are important to me – like travel. And I love knowing that someday, I’ll just get to enjoy myself and not have to think about money.

In the words of The Strokes:

I’m working so I won’t have to try so hard

- Someday

My fellow Americans, I have not been entirely truthful with you. I did ga-googity that girl. I ga-schmoigedied her ga-flavety with my googus, and I am sorry.

OK, so maybe it’s not that bad, but I haven’t been honest with myself.

I’ve been allowing myself to feel good about the things I’m doing right, when the things I’m doing wrong are costing me at least tens of thousands of dollars in the long run. Maybe more.

I’m proud of the changes I’ve made, but I’d be doing myself and my readers a disservice if I didn’t come clean about the elephant in the room: there is no reason why I shouldn’t be contributing to a Roth IRA.

Do the math, stupid

Despite all my hours of research, statistics, writing, planning, etc…, I haven’t bothered to open up a Roth IRA. Yeah, I’m contributing to my 401K to get my employer match, but that’s not enough.

I’m missing out on years of compound interest. It’s the most expensive oversight I can make. How much am I missing out on? Here’s an example (paraphrased from the soon-to-be-released I Will Teach You to be Rich book):

Let’s say there are two investors. Sally is 25, while Dan is 35.

Each investor invests $100 a month in a retirement account. Sally puts money away for ten years, then stops. Meanwhile, Dan socks away money for thirty years.

At the end of thirty years, Sally has $349,856 compared to Dan’s $271,879. That’s a difference of almost $78,000!

It doesn’t matter that Dan actually contributed $24,000 more than Sally. He’s in the hole just because he waited to get started. That’s an expensive lesson.

Start now

Unfortunately with compound interest, you can’t make up for lost time. Roth IRAs have additional restrictions too:

• You can only contribute $5000 per year (current limit, but will be adjusted for inflation)
• Once you make $101,000 (if single) or $159,000 (if married), your contributions are limited
• Once you make $116,000 (if single) or $169,000 (if married), you’re not eligible to contribute anything.

I don’t know about you, but my career goals call for getting paid more with time. I need to get my money invested while I can, so I can let it grow tax-free.

A promise to you

Part of the reason why I started this site was to document my financial journey. That means being open about the things I’m doing right, as well as the things I’m screwing up.

If I’m not honest with you, it hurts us both. I’d be lying to myself if I didn’t tell you that not starting a Roth IRA is the biggest mistake I could be making now.

I can’t promise that I’ll always make the right choices in my financial life, but I promise to come clean with you when I make mistakes. I want people to learn from my experiences – both good and bad.

Want to know how to succeed at investing?

Stop trying.

No, I don’t mean that in some sort of New Age/philosophical way. I mean it quite literally.

Far too many investors waste time and money engaging in what history has shown (repeatedly) to be fruitless endeavors:

• Timing the market
• Picking stocks to outperform the market
• Predicting the next move in interest rates, real estate, commodity prices, or anything else.

Just stop trying. Instead, how about focusing on one of the things that you really can control? For example…

Asset Allocation

Without a doubt, an investor’s asset allocation will have an enormous impact on what his/her returns look like (both year-to-year returns as well as long-term returns).

The more heavily you weight your portfolio toward equities (stocks), the greater your long-term return will be. On the other hand, more equities also means more volatility, so it’s important not to go too heavily into stocks if you’re going to be retiring soon.

For younger investors, I often suggest a 100% stock allocation. After all, if you’re not going to be using the money for another 20-30 years, a temporary market decline has literally no negative effect on you. (Unless you let it scare you into selling at a market low point!)

Minimizing Costs

Investment costs are overlooked surprisingly often. It’s easy to understand, I suppose, given that the difference between low-cost funds and high-cost funds is really just 1-2% per year. But over a long enough period of time, a 1% difference is huge.

Example: $1,000 invested at a 9% rate of return over 40 years turns into $31,409. $1,000 invested at an 8% rate of return over 40 years turns into just $21,725. That’s more than a 30% decline in ending value.

When selecting mutual funds, it can be tempting to ignore investment costs and simply look at historical returns instead. The big problem with this strategy, however, is that funds have a very strong tendency to revert to the mean. (In other words, after a period of outperforming the market, they generally have a period of underperforming.) Investment costs, however, tend to stay the same from year to year. As a result, the expense ratio of a fund has proven to be one of the best predictors of its long-term performance.

Minimizing Taxes

There’s no sense in paying more taxes than you absolutely have to. Take advantage of the preferential tax treatment given to 401k’s and IRAs. If you have a 401k at work, make sure that you’re contributing enough to get the maximum matching contribution from your employer. If your employer doesn’t offer a 401k (or doesn’t make matching contributions), it’s probably best to open a Roth IRA.

In Summary

Again, given that history has shown us that things like picking stocks and timing the market tend not to be successful, why bother wasting your time and money on them (especially when there are other things that you could be doing that really do improve your investment results)?

About the Author: Mike writes at The Oblivious Investor, where he regularly reminds readers not to bother with things they cannot control, and focus instead on things they can. If you like this post, subscribe to his blog to read more.

Kiplinger’s Starting Out wrote the original list, and they just published the sequel – 10 Financial Commandments for Your 30s.

Just like I did with the last one, I’m going to share their list with my thoughts on each one.  I’m not 30 yet, but its great advice for anyone in their 20s too.

1. Pay off your non-mortgage debt

Carrying debt is expensive, and makes it more likely that a financial setback will turn into a catastrophe.  I’m determined to pay off my credit card debt this year.

As far as other debt goes, I have a car payment (that ends next year), and some federal student loans.  I’m not in any rush to pay off the student loans because the interest is partially deductible. 

2. Kick the debt cycle altogether

The normal spending pattern for big purchases is to use credit, then spend months (or years) paying it off.  In the mean time, interest charges rack up.

Your goal should be to reverse the cycle.  Instead of using loans to pay for big ticket items, save for them in advance.  That way, you are the one making money from interest, and you’ll be able to buy things without going into debt.

3. Get serious about retirement

I agree that you need to be serious about retirement in your 30s, but I think that should start in your 20s, as soon as you get a job.  Time is your best friend.

You have to start doing more serious calculations and planning when you’re in your 30s though.  Time is running out, so you need to realize where you’re going to end up if you don’t take action.

4. Diversify your investments

Again, this applies to any age.  The article suggests a stock market asset allocation strategy, but I don’t think it makes sense to just have a blanket recommendation.  Your asset mix will vary depending on your age and comfort level.

Mike at Oblivious Investor came up with a great visual to show how assets should be distributed.  I like that he includes real estate and an emergency fund in his allocation.

5. Continue to learn

Great advice!  No one will ever reach a point where they have learned everything there is to know.

Make sure to spend some time developing your professional skills (to help your career grow) and financial knowledge (to help your net worth).

6. Protect your assets

Even the best financial plans can be derailed by an accident – if you’re not protected.  You should have all of the following:

• health insurance
• disability insurance
• car insurance
• home owners / renters insurance
• an emergency fund

You need to protect yourself in case you lose the ability to make money.  If not, you could lose everything you’ve worked for.

Again, this is another step that should be taken ASAP – not just in your thirties.

7. Live simply

I couldn’t agree more with this.  The key to happiness lies in loving and appreciating what you have, not in desiring what you don’t.  It’s good for happiness, and great for your wallet too. 

8. Make your will known

If you don’t have a will, your assets may not go where you want, and they may take a very long time to get there.  Don’t let your legacy be marred by laziness.  I want my money to go to my family and good causes.  I don’t want the government deciding what to do with my money.

9. Get a life insurance policy

This isn’t a age-based decision.  If you have a spouse or dependents, you need life insurance.  If you’re single and have kids, you probably don’t need any.

10. Be charitable

A great idea for everyone.  I think it’s important to give back.  I recently made my first donation to charity, and am looking forward to giving more as time goes on.

This was another great list from Kiplinger, though they could all apply to your 20s (or any age, if you haven’t done them yet). 

My favorite tip is to live simply.  It is the foundation that enables a lifetime of happiness and financial success.  If you’re always thinking about what you don’t have, you’ll never be happy, and you’ll never stop spending.

What was your favorite tip?  Do you have any you would add to the list?

(if you liked this, make sure to check out my post on 10 Financial Commandments for Your 20s)

Being 27 years old, I have experience in this area.  I want to share their list, and also some insights about how well I’ve followed their instructions.

1. Plan Ahead

You need to have plans and goals that account for the short term (less than 5 years), medium term (5-10 years), and long term (20+ years).

I didn’t do this, but wish I would have.  I have goals now, but that’s after I’ve bought a car and house – the two biggest financial decisions I’ve made.  I would’ve saved a lot of money by planning for them more than a few months in advance. 

If I had a bigger down payment for my house, I could have gotten a better rate on the mortgage.  Even a down payment of $10,450 would have saved me close to $60 a month, and more than $22,000 in interest over the course of my mortgage.

2. Live within your means

Another one I ignored at my own expense.  When I first got a job, I actually increased my credit card debt.  Not an uncommon story, but its an expensive one.

The best time to get ahead is our early years…you don’t want to be burdened with debt from the beginning.

3. Make Savings a Habit

A swing and a miss!  My money goes to pay off debt now, so I still don’t have any savings to speak of.  But what I should have done – even before my first paycheck – is set up an automatic deposit from my paycheck that goes right into a high-yield savings account.  I never would’ve missed the money, and I would’ve gotten used to living off of 10% less than I was earning.

4. Pay off your credit cards

Credit cards are expensive.  I did a great job of paying off my credit card debt after I got a job.  Then I wracked up more debt because I didn’t have savings.  Granted its on 0% interest cards, and I should be able to pay it back before the rate expires, but still…its a bad feeling to have credit card debt.  The sooner you pay it off, the better you (and your bank account) will feel.

5. Start investing

The beauty of investing is compound interest.  It has a greater effect if you start early.

The article gives an example of a 25 year old who invests $200 a month, and earns an 8% return on it.  By the time he turns 65, he’ll have $703,000 in his account.  However, if he waited to start until he was thirty, he’d have only $462,000.  By starting 5 years earlier, he makes $241,000 more off of only $12,000.

This is one of the few things I’m doing.  I’m contributing a decent amount to retirement, but it could be more.  I plan on opening a Roth IRA on top of the money I’m already investing in my 401K.

6. Establish Credit

This is something that should be done in your teens if possible (and if done responsibly).

Length of credit is a big part of your credit score, and its the only thing you can’t do anything to change.  By getting a credit card ASAP – and paying it off each month – you build credit, and your credit score will be in a much better place when you start applying for car loans or mortgages.

I got a credit card soon after I started college, which helped me build great credit.  Unfortunately I also used the card irresponsibly.

7. Have a marketable skill

Before you start working, you should think about where you want your career to be in 10-20 years.  Everything you do in your 20s should be building the skill set you need to achieve your goals.

It’s never too early to start specializing or networking.  If you know what you want to do for a living, start working towards that in college by building real-life, applicable experience.  It will give you an edge over other entry level employees.

This is another commandment I’m following, but I could be specializing better.  I feel like I have a good skill set, but its too broad and not deep enough in any one area.

8. Cut the financial umbilical cord

If you want to be treated like an adult, you have to act like one.  You need to balance your own checkbook, do your taxes, and manage your investments.

You have to take responsibility for your finances as early as possible.  No one else will care about your money as much as you do.

9. Marry Wisely

Although it sounds vulgar to think about marriage and money in the same sentence, money causes more divorces than anything else.  Before you get married, make sure that you talk about finances and share a similar mindset, including goals and priorities.  If you don’t, make sure you take the time to work out your differences, because it could blow up later.

10. Have some fun

This is the only thing on the list I’ve really done well.  It’s important to have fun, and it’s important to be responsible.  The trick is to keep it balanced.

I thought this was a great list.  The unfortunate thing is that many people – myself included – learn by doing the wrong things when it comes to money.  I wish that more parents, colleges, and even entry level employers would make a point to discuss finances.  It would put countless people in a better position on the road to wealth.

If you liked this, make sure to check out some of my other posts like 12 Easy Ways to Sabotage Your Finances in College or Twenty Reasons You’re Not Rich.

Here is their list, along with my comments.  Their list is in bold, and my thoughts are underneath.

1. Grow your own food

While I’ll grant that its very satisfying to grow your own food, for most people this is not a good way to build wealth.  It may save some money, but in most cases it won’t be very much.

2. Set limits and stick to them

Yes!  Part of budgeting is to make a plan and stick to it.  The trick it to set limits right when you get paid – this allows you to pay yourself first.

3. Buy savings bonds

They suggest taking 10% of every paycheck – which I like – and investing it in savings bonds – which I don’t.

Putting away 10% is a great idea, but there are better options than savings bonds.  Yes, they offer a guaranteed return, but it comes at a cost.  Because there is little risk, the return will be much lower than other investments.

4. Redirect your raises

Another great idea!  A great way to “accidentally” get rich is to always keep your take home pay the same.  Any time you get a raise or a bonus, save or invest it.  If you never see it, you can never miss it – or spend it.

5. Split raises in half

This is just a watered down version of #4.  Instead of saving/investing all of your raises, this one suggests that you keep half, and save/invest the rest.  Still a good way to get ahead, but not as good as #4.

6. Track spending

One of my favorites!  I’m convinced that if you track your spending, you’ll spend less.  If you know exactly where your money goes, you’ll start finding better uses for it.

7. Spend less by budgeting

Plan your monthly budget in advance, and pay yourself first.  Regardless of if you’re trying to pay down debt, save for a vacation, or save for retirement, you’re more likely do accomplish it if you make a point to do it first, before spending any money.

I actually plan my budgets at least two months in advance.  That way, nothing sneaks up on me.

8. Save by Using Credit

It’s dangerous, but using credit wisely can save you a lot of money.  The article suggests using credit cards for all purchases, but you have to pay them off on a monthly basis.  That way, you earn reward points while you make interest on your cash.

Another way to use credit to save cash is to take advantage of 0% interest balance transfers.

Again, its dangerous, but if you’re responsible and committed, you can save a great deal of money.

9. Take advantage of rewards

This ties into #8.  If you can earn cash back or free rewards for the things you already do, you’d be a fool to not take advantage of them.   Again, just make sure you pay off all credit cards in full each month.

10. Save with coupons

You can save a lot of money by using coupons or just buying what’s on sale.  Take the time to look through ads before you hit the stores.

11. Use direct deposit

This is similar to #4.  If you automatically transfer money to savings accounts right after you get paid, you can’t be tempted to spend it.  Also, it you automate it, you can’t forget about it.

12. Leverage automatic savings

This builds off of the last one.  If you use direct deposit or automatic transfers to take money out of your checking account, you pay yourself first and ensure it goes to your savings.  If you want until the end of the month to put money in savings, you’ll inevitably end up spending it all.

13. Don’t touch the money

Putting money in savings is only half the battle.  You have to leave it there if you want it to grow.

14. Pay attention to progress

They suggest tracking your debts and assets, and watching how your debt goes down and turns into a positive net worth.

I think it’s a great idea, but looking at your 401K or net worth every day is too much, and can actually be bad for your finances.

Tracking your accounts and progress is great, but micromanaging them is not.  Maybe check it on a weekly or monthly basis, but not every day.

15. Save a little [more] every week

If there is a goal you’re saving for, start with a small amount, and increase it over time.  Eventually, you’ll adjust to the lower income, and your savings will grow pain-free.  Making the transition gradually will be easier, and more likely to stick.

16. Check grocery store ads

Nothing shocking here.  If you check store circulars and go to the store that has the lowest prices, you can save a lot of money.

My favorites

The list is simple and repetitive, but contains solid advice for getting ahead in your finances.  Here are my favorites:

• Redirect your raises - if you keep your take home pay the same and put the remainder into savings/retirement, you’ll build wealth very quickly.
• Track your spending/set a budget – if you set a plan, you’ll spend less, and use it for better purposes.
• Don’t touch the money – you should be saving/investing for the long run.  To get rich, your money must continually build in value and take advantage of compound interest
• Pay attention to progress – you should always be aware of how much money you have or owe on all your accounts.  It helps prevent identity theft, and it’s also a strong motivational factor.

Confused about where to start, he approaches his father.  His dad sends him to a surprising mentor - their barber, Roy.  The father explains that Roy taught him everything he knows about money, and offers to call Roy and let him know that Dave is coming in for a lesson.

Dave, joined by his sister Cathy and best friend Tom, go to the barber for a financial lesson.  Roy is a small town barber who has amassed a small fortune on a small salary.  He explains that he did this by following a few simple rules, and offers to teach them to the trio on a monthly basis.

The lessons include:

1. Take 10% of your salary, and save it by paying yourself first.  This is not a retirement or emergency fund – it’s a get rich fund.  Every time you get paid, take 10% of your paycheck and invest it.  The author suggests mutual funds, but I’d be willing to bet that if I had a newer copy, he might suggest index funds too.  I’d add the caveat that you should invest 10% or your pre-tax salary if you really want to get ahead.
2. Make sure you have a will and life insurance.  You need to think of your dependents, even if you’re not around.  No dependents?  Don’t worry about life insurance
3. Save for retirement, and don’t rely on social security.  No advice on how much to save, but he explains the different types of retirement plans available, including 401K, 403B, IRA, pensions, SEP (Simplified Employee Pensions), and Keoghs (for the self-employed).
4. When deciding whether to rent or buy, do a comparison and make sure you think of the consequences.  Roy leans heavily towards buying a house due to tax advantages, increasing value, and leveragibility, but he also points out that depending on your situation, renting might be a better value.
5. Be thrifty and frugal in your day to day finances.  The barber suggests having a budget, but also says if you’re saving and planning for retirement, you can afford to be a little wasteful. 
6. Make smart investments (even if the investment is paying down debt), and learn how to minimize your taxes
7. How to handle emergency funds – only have a small one.  This one of the few areas I disagree with.  The author says that you don’t need to worry about having a significant emergency fund, as you can always use credit cards or loans in a crunch.
8. How to save for your childrens’ education
9. The importance of disability insurance.  I agree completely.  All it takes is one accident to change your way of life and ability to earn an income.  You need to protect against this if you want to protect your lifestyle.
10. The importance of staying informed of financial news.  You don’t need to check your investments continuously, but you should at least be aware of what’s going on in the economy.  An informed investor is a smart investor.

Unlike many books that make finance seem too complicated, the Wealthy Barber emphasizes that anyone can get rich.

The fictional story line makes for an entertaining read, even if the jokes are corny.  The three protagonists provide a good sample of the potential audience: a married man with a family, a single business owner, and a single worker.  The diversity shows that the lessons apply to you, regardless of your situation.

This is a great read for everyone.  It covers the basics of finance well, and also makes the principles of building wealth available to everyone, regardless of income.  It’s an enabling and encouraging point of view.

Executive Summary:

Title:  The Wealthy Barber

Book Jacket Summary:

Regardless of your income, you are probably making a salary that would have looked like a small fortune just a few years ago.  And yet, if you’re like most people, you are not on your way to financial independence.

The amazing thing is that even if your income were twice what it is today, or more, you would not necessarily be any wealthier.  Most people simply become broke at a higher level – the more they earn, the more they spend.  And if you’ve tried budgeting, you’re realized that it is as ineffective as dieting – it only makes you feel deprived.

Thankfully, with this special book, there’s a way for you to become wealthy gradually, starting today.  The Wealthy Barber has already shown hundreds of thousands of people how to improve their fortunes by taking a few simple and painless steps.  And by successfully helping so many get ona  sound financial track, it has proven that a small salary is no barrier to financial well being - as long as you follow its simple, easy, and enjoyable plan.

Author:  David Chilton

Target Audience:  Everyone

Pages:  200

Topics / Chapters:

1. The Financial Illiterate

2. A Surprising Referral

3. The Wealthy Barber

4. The Ten Percent Solution (saving and investing money to get rich)

5. Wills, Life Insurance, and Responsibility

6. Planning for Retirement

7. Home, Sweet Home

8. Saving Savvy

9. Insights into Investment and Income Tax

10. Graduation

Should I Read It?  Read it twice

Most money books just tell you what you should be doing – which most of us already know, but ignore anyway.

“Why Smart People Make Big Money Mistakes – and How to Correct Them” is unique in that it examines why we don’t do the things we know we should be doing.  It seeks to improve your finances by helping you examine - and more importantly - change the way you make decisions.

I’m a big believer that if you want to change anything in your life, you have to change the way you think.  This is the perfect book for that.

The authors tackle topics such as:

• Mental accounting – the tendency to value certain dollars more than others depending on where they came from or where they’re going
• Loss aversion – the fact that a loss tends to feel twice as bad as an equal gain would feel good
• Sunk cost fallacy – the habit of considering past expenses with regards to future decisions
• Indecision – why we hesitate to make decisions, and what it can cost us
• Number illiteracy
• Bigness bias – the tendency to overlook small costs or bury them in larger expenses
• Anchors – latching on to a piece of information that has nothing to do with question at hand

They examine each of these tendencies, showing how they help us, but more importantly how they hurt our finances.  They do so in a way that is witty and entertaining.  They frequently question the reader to prove how they are prone to the traps mentioned above.  Even when you’re aware that the authors are trying to trick you, you can’t help but fall for it.

By being aware of the tendencies listed above, we can avoid making mistakes, and genuinely change our life and our finances.  They don’t just treat the symptoms of poor finances – they treat the illness at its core.  It’s already had an impact on me, in that I’ve decided to start an IRA before my debt is paid off.  Thanks to the book, I realized that I was valuing today’s dollars more than I would a greater number of dollars in retirement.

As soon as I finished it, I read  it again.  It’s funny and entertaining, and the authors keep things interesting by using a mix of examples, psychology, and statistics to prove their points.  The emphasis is to change the way you think, but the book is also full of sound financial advice.

This book is a must read for anyone, regardless of their age or financial savvy.

Executive summary:

Title: Why Smart People Make Big Money Mistakes – and How to Correct Them

Authors: Gary Belsky and Thomas Gilovich

Target Audience: Everyone

Pages: 220

Topics/Chapters:

0. Introduction to the new science of behaviorial economics.

1. Not all dollars are created equal – how mental accounting can help you or cost you money.

2. When six of one isn’t half a dozen of the other – how “loss aversion” and the “sunk cost fallacy” lead you to throw good money after bad.

3. The Devil That You Know – How the “status quo bias” and the “endowment effect” make financial choices difficult.

4. Number Numbess – “Money illsion”, “bigness bias”, and other ways that ignorance about math and probabilities can hurt you.

5. Anchors Aweigh – Why “anchoring” and “confirmation bias” lead you to make important money decisions based on unimportant infromation.

6. The Ego Trap – “Overconfience” and the price of thinking that you know more than you do.

7. I herd it Through the Grapvine – “Information cascades” and the danger of relying too much on the financial moves of others.

8. Conclusion – Now What? - principles to ponder and steps to take

9. Postscript -Psychic income

Should I Read it?  Read it twice

More book reviews

To that end, I’d like to discuss Jeffrey Strain. He recently published a list of Ten (More) Reasons You Aren’t Rich, a follow up to his original list of Ten Reasons You Aren’t Rich. If you can steer clear of these pitfalls, you’ll be well on your way to wealth.

His list is below in italics. I’ve added my notes below each one, and also highlighted my favorites.

1. You care what your neighbors think

If you’re competing against anyone for material possessions, you’re always going to lose. There will always be people with more than you. The trick is to be happy with what you have, not worry about others.

2. You aren’t patient

With credit cards, you have the ability to buy things first, then save for them later. If we saved the money up front, we’d buy less things and pay less interest.

3. You have bad habits

Everyone does. It may be going out to eat, it may be buying DVDs, could be shopping too much or going out to the bars. We all have our sins, and we could all cut some of them out without affecting our happiness.

4. You have no goals

This is my favorite one. You have to have goals to accomplish what you want. You have to track them and work towards them. Good things don’t just happen on their own.

5. You haven’t prepared

Hope for the best but prepare for the worst. You should always have insurance (I have health, disability, and life), and an emergency fund (which I don’t) to help you through the hard times. If you don’t, one bad day has the potential to wipe out your finances.

6. You try to make a quick buck

There’s no easy way to get rich. It’s going to take time and hard work.

7. You rely on others to take care of your money

No one will care about your money more than you will. And even the best financial planners may not have the same goals as you.

8. You invest in things you don’t understand

You should make financial decisions because you’ve investigated it, compared the benefits and risks, and decided that it will help your bottom line. You shouldn’t invest in something because it’s a hot tip, or because everyone else is doing it.

9. You’re financially afraid

Being overly conservative with your money is another way of throwing it away. If you keep your money in a savings count, you’re actually losing your buying power after inflation is considered. If you have a retirement plan, but invest exclusively in bonds even at a young age, you are wasting time.

10. You ignore your finances

Ignoring bad news won’t make it go away. If there are things in your financial life that you are not happy about, you need to tackle them head on and come up with a plan to fix them. You can’t just bury your head in the sand.

11. You care what your car looks like

Why buy a new car if the one you have now runs fine? It’ll just cost you more in interest and insurance. Also, once you finish off a car payment, it’s easy to just channel that money into a better cause, like savings or a retirement fund. You’ve probably already forgotten about the money spent on car payments, so you won’t miss it if you just put it somewhere else.

12. You feel entitlement

Everyone is guilty of this. “I had a rough week. I deserve to XXXXX.” Or “I make good money. I should be able to YYYYY”. This is ok sometimes, but the key is to use moderation. Cut out some of the entitlements that don’t matter or don’t really make you happy.

13. You lack diversification

Sound investment advice. If your eggs are in multiple baskets, chances are that one of them will be doing well even as others are on the way down.

14. You started too late

Time is the best friend you have. The power of compound interest is incredible, especially for young investors.

15. You don’t do what you enjoy

I agree with this, but only so much. You have to enjoy what you do, but taking your dream job probably won’t make you rich either. Finding a job that you can take pride in and that helps you grow is a good start. With time, you can hopefully leverage your experiences to work towards something you’re passionate about.

16. You don’t like to learn

If you want to be in charge of your finances, you need to learn as much as you can. Talk to people. Read columns, read books. Read blogs, and learn from the experience of others. You can benefit from their mistakes without having to feel their pain.

17. You buy things you don’t use

We all have books, movies, exercise equipment, etc… that we no longer use. Any time you buy something, take the time to stop and think “Do I really need this, and will I really use it?”

18. You don’t understand value

Cost is not the same as value. The most expensive product probably isn’t the best, and the cheapest may just fall apart. Make sure you get the most for the money you spend.

19. Your house is too big

I think this was a big contributor to the housing meltdown and credit crunch. People bought more than they could afford because they thought it was an investment. Your house is something that costs you money – it’s a liability. Having a bigger house will cost you more in the long run.

20. You fail to take advantage of opportunities

If you really want to get ahead, you’ve got to take advantage of everything you can. This means investing at an early age. Taking advantage of 401K matches and employee stock plans. Recognizing and buying a good value when you see it, regardless of if it’s a car, house, or investment.

It doesn’t just stop there. How many times have you seen a new business or idea, and thought “I could’ve done that.” Well, why didn’t you? If you have an idea or opportunity, go for it. Don’t just sit there.

I think you learn more from mistakes than you do successes, and that’s a great list of mistakes to avoid. I’m guilty of at least 9 of them.

If it was my list, I would also add: “You make the same mistakes twice”. How many people pay off debt just to sink back in? Or say repeatedly “I’ll start tomorrow”. What other mistakes would you put on that list?