Reading Up on Finance

When it comes to managing personal finance, you can never have too much information. No matter your age, or in what stage of life you are, there are resources available to help you better manage your money. Below, I have compiled a list of books that everyone keeping a close watch on their personal finances should read.

The Millionaire Next Door by Thomas Stanley and William Danko

This book is perfect for young people that are just beginning to get a handle on their own money. It chronicles 20 years of research on the habits of wealthy people, and has 7 key principles that they all follow. The principles are common sense, and good habits to begin early.

Thinking Fast and Slow by Daniel Kahneman

In this book, acclaimed economist Daniel Kahneman focuses on the two ways we make financial decisions - quickly and impulsively, and slowly and logically. While this is a great read for all ages, it is especially important for those beginning to build a budget because it explores the psychological mechanisms behind financial decisions. Understanding the reasons behind decisions will allow young people to make better financial choices.

The Behavior Gap by Carl Richards

In this book, financial planner Carl Richards goes after everyone of any age who makes mistakes with money based on bad decisions. He hones in on the silly ways we spend our money and why our natural instinct is to spend on things we do not truly need. Richards then explains the rationale behind these decisions, and advises readers on how to change our spending habits.

Your Money or Your Life by Vicki Robin, Joe Dominguez, and Monique Tilford

This book is the perfect illustration of how more frugal living can lead to a heightened quality of life. While many people today are stuck in a loop of making more money to be able to afford more things, they are not taking into account how much their quality of life actually changes. At a certain point of financial independence, it stops going up.

The Total Money Makeover by Dave Ramsey

Anyone who is looking to do an overhaul of their personal finance management must read this book. With all of the ‘how to be a millionaire’ advice out there, it is nice to read a book that focuses on the baseline - becoming financially stable. Ramsey focuses on the behaviors that need to change, and the knowledge that needs to be spread, in order for a person’s finances to become stable. He also incorporates success stories and financial planning worksheets into this book for an added bonus.

For more personal finance reading recommendations, read about the top 10 personal finance books of all time and personal finance books to read before you turn 30.

Index Card Finances

A little under three years ago, Professor Harold Pollack interviewed a personal finance writer. Pollack, a professor at the University of Chicago, took some time to engage writer Helaine Olen in a discussion about why so many people trust financial advisors when they are often given the wrong advice. While Pollack may have made too general a statement in saying financial advisors should not be trusted, he brought up an interesting statement that has wormed its way into the financial world. He began the idea that all the financial advice an individual needs can be written down on a 3x5 index card.

You may be thinking that this is crazy. How can everything one should do with his or her finances be shrunk down into such a small space?

Pollack then, to further prove his point, wrote financial tips on an index card and posted a picture on the internet. While these tips were already common knowledge, and quite general, they did spark a conversation about simple, transparent financial advice. The index card that he wrote on had several pieces of broad advice on it. They included buying diverse mutual funds, saving 20% of your money, and maxing out your 401k. Many people took to these simple finance tips the moment the index card went viral on the internet. Other financial experts, however, realized that personal finance is much more complicated than a few broad statements. Pollack did not take into account that people may not know how to save 20% of their income, for example, and that social insurance programs were not common knowledge. While the index card was a good place to start, it became clear that expert advice was necessary when figuring out finances got down to a personal level.

Pollack later retracted his statement about financial advisors being completely useless when he published his book The Index Card, but maintained that all advisors should use simpler methods in explaining personal finances. Now, here’s something I can agree with. Unfortunately, many people today are forced to jump through hoops when speaking to a financial advisor, and that can make their ideas about what to do with money convoluted.

This is why I am part of the Money Smart Movement. I am dedicated to educating my clients about finance, as opposed to simply telling them what to do. I, as a financial adviser, strive to help my clients learn more about how to take control their finances so they can beat debt and become financially independent. Therefore, while I agree that the simplicity of an index card with all the financial advice you will ever need is tempting, I encourage speaking with a financial adviser who will teach you about how to be smart about handling your money.