Monday, April 20, 2015

Book Review: The Money Book for the Young, Fabulous & Broke

A few weeks ago, I read through Suze Orman's book, The Money Book for the Young, Fabulous & Broke and, as always when I read a book that is related to the topics of this blog (Fitness or Finance), I wanted to share some of my thoughts on it.

Suze's Young, Fabulous and Broke (or YFB) book is, as its name implies, is written with a target audience in mind of younger readers who may be first navigating their way through the financial world. This book discusses everything from credit score, building savings, how to analyze your investments, and almost everything in between, and is a great resource.

At over 300+ pages, it would be impossible to discuss every topic, but the whole book is broken down into categories and gives information at the beginning of the chapter, then answers specific situations in a question and answer style, then does a  chapter recap with actionable items for that chapter. So you can read in order from front to back, or just dive in with something you may have been having trouble with or have been wondering about. I always find that this style is most helpful, because you don't want to have to read dozens of pages to find the two-five sentences that you were looking for, so I greatly appreciate that.

One thing I thought was strange, was that in her chapter about buying a house, Suze actually goes as far to say directly that "flat out, a home is the best big-ticket purchase you will ever make" and she actually believes that it is a good investment strategy. Here's the thing: I simply do NOT agree with that sentiment. If you are buying a home structure for the purposes of renting it out or if you are a skilled "flipper", then sure, buying a house can be an investment strategy. But your primary residence that you yourself live in? No. That is not an investment.

Many people buy houses expecting them to appreciate so much they can sell for a profit later in life, but that is not a guarantee, and many studies and articles show that, after inflation is accounted for, housing prices actually don't change upward that much.  Through the life of living in a house, mortgage interest, property taxes, and general maintenance of the house typically means you will pay much more than the purchase price (double or sometimes many times over), and of course you never know if there will be another housing bust like that of 2007-2008 that leaves your $200,000 house worth $50,000.  If you are buying your home for your own personal reasons outside of it being an investment, then by all means, please do. (We certainly plan to when we're able to!) Just try to keep in mind the true price of home ownership in your dealings.

However, when it comes to buying a home, YFB did give one piece of advice that I thought was pretty genius: "Play house before you buy a house." The basic idea is this: After figuring out a general idea of what your mortgage could be (look up house prices in area, check to see interest rates and possible mortgage based on your credit score, etc.), add 40% to cover maintenance, etc., and transfer the difference between your current rent and the increased amount for 6 months to your savings account. For example, if your estimated mortgage plus that 40% is $1450 and you currently pay $1000 in rent (totally made up numbers on my part), transfer $450/month to savings for 6 months. If you miss one payment, or are consistently late transferring the money, you are not ready to take on the burden of actual homeownership. I think this is a great way to practice paying that higher amount, and of course as Suze points out, it does help boost the down payment you're working towards.

So overall, I think this book is a very useful resource. Even if you are not "YFB", it does explain things in a pretty clear and easy to understand terms. It would be worth a read or look if you are looking for some basic information on saving, investing, home ownership, or other topics having to do with personal finance.

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