The next three posts are going to be book reviews because I want to share with you guys some amazing money resources.
I learned a lot from this book. It covers the basics really well and I really credit it with filling in some gaps that I had in my own practices. Specifically I implemented new methods of handling my checking account, 401k and ROTH IRA.
Up until this point I had been self taught in terms of managing my money and there were things that I simply didn’t know. For example I used to leave all of my money in my checking account. Now, I move almost everything into a higher yield savings account and leave a certain amount in my checking. This forces me to pay attention to how much money is in my checking account before I make a large purchase. Do I need to move money from savings? If I do, do I really want to do that? These are important questions and helped me curb some behavior that wasn’t supporting my goals. Also, I now earn more just by having my money in the bank.
Additionally, I had not really paid attention to my 401k before reading this book. I had paid into it but I didn’t know much more than that. I know I’m supposed to be the expert, but I have my own money shit I need to handle! This was a great primer on how to think more comprehensively about your 401k. Compound interest is amazing and that’s why everyone recommends getting started with your 401k right away.
I had stopped contributing to my 401k because I was feeling the squeeze from cost of living increases (SF is expensive!) and I learned through this book (and some helpful advice from friends) that I just need to suck up the living increases and keep paying my 401k because I’m costing myself my retirement. I now need to pay more per month into my 401k than I used too so I could make up the difference and I’m diverting some of that money into a ROTH IRA based on the advice in this book as well.
This book provides good advice for which funds to put your money in but the specifics are going to be left up to your own personal choice. Additionally, since it’s a moving target I suggest talking to a professional to get the latest and greatest information.
This book also introduced me to the idea of a ROTH IRA. If you’re interested in starting one please see a licensed expert, but my general understanding of them improved greatly with this book. The bottom line is that you put money into them after taxes, so they grow over the year’s tax free. If you put $5000 a year into it for 30 years you will earn ~$30k in interest which you can take back out at retirement and not pay taxes on. You can only put so much in and you can only put money into them if you’re in certain income brackets, but it was a lifesaver for me especially since I was already contributing a lot to my 401k and I wanted to contribute more.
This book also gave me a handy calculation to figure out if my expenses are in line with the national average. 30% rent, 20% bills, 10% 401k, 10% savings, 30% fun. How are you doing on that? Some clients of mine are paying exorbitant amount in rent, almost 60%, and this really helped them reevaluate.
This book also has good advice on how to deal with your credit score. This is a tricky one, because it’s a lot of moving balls and a seemingly good step can cost you. For example, I wasn’t using a credit card so I cancelled it, thinking that it would be good for me. Turns out it wasn’t; it was my oldest credit card and my credit history went from 11 years down to 2 years. Oops, there goes the credit score. Lesson learned! A good website for this is creditkarma.com, its free and it will let you check your credit scores and see the breakdown of what’s influencing it. Going into the mechanics of credit score will require a full blog post so I’ll just leave it up to Ramit to go into the details http://www.iwillteachyoutoberich.com/blog/how-to-improve-your-credit-score/
What Ramit doesn’t cover, which I think is important, is keeping the habits going. Once you set it up, it’s not fire and forget. You will need continual maintenance. Are these systems working for me? In figuring out that question, you will get a deeper understanding of your money. Also, he doesn’t cover this in his book (but continues to discuss it more on his blog) is the emotion of money. How do you relate to money? What do you actually think about money? How does that influence you? This is the second half and arguably more important half of getting your money shit handled and its not covered in his book.
Bottom line, this book is a great primer on the facts of money. If you have been having any trouble with it up until now it’s not going to help you but if you find money easy and just need to fill in some gaps this book will do wonders. If you are having trouble, then you have a emotional story about money that’s making it difficult. For that emotional side, my next topic is going to be about “your money or your life”, a book by Joe Dominguez.
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