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.
Showing posts with label Book Review. Show all posts
Showing posts with label Book Review. Show all posts
Monday, April 20, 2015
Friday, March 13, 2015
Book Revew: Why Smart People Make Big Money Mistakes
I finished reading the book Why Smart People Make Big Money Mistakes and How to Correct Them; Lessons from the New Science of Behaviorial Economics By Gary Belsky and Thomas Gilovich about a week and a half or two weeks ago and wanted to share some thoughts. This was the book that I was trying to get from the library when I checked this one out, but the latest version wasn't available so I got the other one. Then I decided that it would be a worthy read even if it is not the latest edition, then it became a matter of waiting for it to become available, which is always the hardest part.
As the name implies, this book talks not only about some money issues that people face, but also tries to offer some practical advice on how to change your behavior or habits to resolve those issues. I found the book to be a pretty easy, and quick, read with some interesting insights. Here are some things from the book that may be helpful:
One quote that I liked in the book's introduction was "Sometimes people make mistakes because they behave like sheep, and sometimes they err because they behave like mules." In context, the authors say this because they are talking about how they will discuss both blindly going with the crowd on decisions, and how to avoid stubbornly going against things, even if would be good to go with it. But this line stuck with me because it really can apply, like many concepts in the book overall, to more than just money decisions.
Here are some concepts that were discussed, and their relevant tips that may help you if you do any of these:
-Mental Accounting, which is the tendency to treat money differently based on the source it comes from or what it is intended for, or to spend more on credit than you would with an outright cash purchase. As the authors point out, this can be very beneficial when it comes to making sure bills get paid because you have money set aside that won't get spent on random things, but not so beneficial when you treat windfall money differently than money you earn. (An example they give is a fictional woman who was a savvy investor with her own money who got an inheritance from her grandmother and refused to invest because her mental accounting viewed "Grandma's Money" as more sacred than her own. Her lack of investing that money would cost her thousands in gains over the years.)
I know that I personally do some creative mental accounting (such as multiple savings accounts for different goals), but I try to keep it to the positive form of it (since all bills ARE paid, savings and investments are being funded, etc.), but if you do this and it's the not-so-positive version, they give recommendations like remembering that every dollar spends the same (so don't hold onto money from one source more than another), and using mental accounting to your advantage by using payroll deductions/direct deposit for savings, etc.
-Decision Paralysis- I've also seen this called Analysis Paralysis before, which I think sounds more interesting, and we ALL know what that is: Too much information means it's hard to make a choice or decision, and often we end up not doing anything for a while, if at all. Not like I would know anything about that... In addition to discussing some methods on how to deal with this (Like Automated investments, and reframing things in your mind to be more about what to REJECT rather than SELECT), they also started the chapter that discusses this by quoting Rush's Free Will; "If you choose not to decide, you still have made a choice." And, really, how can you go wrong by quoting an awesome Rush song?
The book also discusses and attempts to help on several other things like Loss Aversion Mentality, Overconfidence, Confirmation Bias and more. Overall, I think this is a very worthwhile read. I really like that the authors give easily digestible, and more importantly, actionable ideas on improving money situations (and as you read it and think about it, other areas of life, too).
This was the first version of the book, from 1995, so I don't know how much is different in the newer edition(s), but I am sure it would be just as beneficial (if not more so) as this one. If you are interested in this sort of information, I would recommend giving this book a peek.
As the name implies, this book talks not only about some money issues that people face, but also tries to offer some practical advice on how to change your behavior or habits to resolve those issues. I found the book to be a pretty easy, and quick, read with some interesting insights. Here are some things from the book that may be helpful:
One quote that I liked in the book's introduction was "Sometimes people make mistakes because they behave like sheep, and sometimes they err because they behave like mules." In context, the authors say this because they are talking about how they will discuss both blindly going with the crowd on decisions, and how to avoid stubbornly going against things, even if would be good to go with it. But this line stuck with me because it really can apply, like many concepts in the book overall, to more than just money decisions.
Here are some concepts that were discussed, and their relevant tips that may help you if you do any of these:
-Mental Accounting, which is the tendency to treat money differently based on the source it comes from or what it is intended for, or to spend more on credit than you would with an outright cash purchase. As the authors point out, this can be very beneficial when it comes to making sure bills get paid because you have money set aside that won't get spent on random things, but not so beneficial when you treat windfall money differently than money you earn. (An example they give is a fictional woman who was a savvy investor with her own money who got an inheritance from her grandmother and refused to invest because her mental accounting viewed "Grandma's Money" as more sacred than her own. Her lack of investing that money would cost her thousands in gains over the years.)
I know that I personally do some creative mental accounting (such as multiple savings accounts for different goals), but I try to keep it to the positive form of it (since all bills ARE paid, savings and investments are being funded, etc.), but if you do this and it's the not-so-positive version, they give recommendations like remembering that every dollar spends the same (so don't hold onto money from one source more than another), and using mental accounting to your advantage by using payroll deductions/direct deposit for savings, etc.
-Decision Paralysis- I've also seen this called Analysis Paralysis before, which I think sounds more interesting, and we ALL know what that is: Too much information means it's hard to make a choice or decision, and often we end up not doing anything for a while, if at all. Not like I would know anything about that... In addition to discussing some methods on how to deal with this (Like Automated investments, and reframing things in your mind to be more about what to REJECT rather than SELECT), they also started the chapter that discusses this by quoting Rush's Free Will; "If you choose not to decide, you still have made a choice." And, really, how can you go wrong by quoting an awesome Rush song?
The book also discusses and attempts to help on several other things like Loss Aversion Mentality, Overconfidence, Confirmation Bias and more. Overall, I think this is a very worthwhile read. I really like that the authors give easily digestible, and more importantly, actionable ideas on improving money situations (and as you read it and think about it, other areas of life, too).
This was the first version of the book, from 1995, so I don't know how much is different in the newer edition(s), but I am sure it would be just as beneficial (if not more so) as this one. If you are interested in this sort of information, I would recommend giving this book a peek.
Friday, February 20, 2015
Book Review: Nudge
I recently finished reading (yesterday, actually) Nudge: Improving Decisions for Better Health, Wealth, and Happiness by Richard H. Thaler and Cass R. Sunstein. Here are some of my thoughts on it:
If you are unaware, Nudge is about, as the back cover says, "Choices-how we make them and how we're led to make better ones." It addresses common problems, such as savings rates for retirement, making better health decisions, reducing environmental impacts and a few other things where choices could be made better. They talk early on about nudges come from what they call "Libertarian Paternalism" and "....Influencing Choices in a way that will make the choosers better off, by their own judging." In other words, they want to make it easier for people to make better choices.
Some interesting points made in the book:
If you are unaware, Nudge is about, as the back cover says, "Choices-how we make them and how we're led to make better ones." It addresses common problems, such as savings rates for retirement, making better health decisions, reducing environmental impacts and a few other things where choices could be made better. They talk early on about nudges come from what they call "Libertarian Paternalism" and "....Influencing Choices in a way that will make the choosers better off, by their own judging." In other words, they want to make it easier for people to make better choices.
Some interesting points made in the book:
- No matter how much we believe otherwise, we are all "Sheeple" (my words, not theirs) and are prone to being influenced by other people or outside factors, even if unconsciously.
- Because we do crave approval from others or want to do what others are doing , if people are doing something that is good/better than others, it is best not to tell them so. A line from the book that I liked on this subject was: "If you want to nudge people into socially desirable behavior, do not, by any means, let them know that their current actions are better than the social norm." An example they give on this, is people in a certain city/neighborhood being given information on their energy use in comparison to their neighbors', and those that were told their use was lower than the average use, their consumption went up but those who were told that their use was higher than average brought theirs down. But when given either a smiley face or frownie face for good/bad usage, those with good usage didn't tend to change to a higher consumption. So, overall, don't tell people if they are doing better than average or normal.
- For Increasing people's retirement savings rates, they propose employers have automatic enrollment into retirement plans for employees, with an opt-out option instead of the current opt-in that most employers have currently. The authors also talk about an idea, "Save More Tomorrow", which automatically increases the contribution account at a set time frame (e.g every 6 months). I think this is a great idea, and if implemented by more companies (some already do), it could really help reduce the crises of people not being prepared for retirement and not having enough from social security.
- Speaking of Social Security, the authors talk about how Sweden had semi-privatized Social Security by setting aside part of the fund into investment accounts for individuals and allow them to select the investments or to use the default fund that was selected by experts. I think this idea is really interesting. People have to pay social security tax anyway, so to have a chance to have a say in how it is accumulates/grows is quite a concept. I would really be interested in learning more about this...
- One other Nudge that I found interesting was, in relation to increasing organ donorship, the authors talk about a mandated choice program (being required to choose whether your answer is yes or no), and mentions how Illinois has a similar program in place already where when at the DMV you have to select if you are a donor or not before the license can be renewed/etc. If you say yes, they will advise you that family cannot override this and if you would like to reconsider. I find this to be an interesting concept because it helps for the greater good (more organ donations) without intruding on people's right to decline to be a donor, and makes it convenient--which is the entire point of a NUDGE.
Tuesday, December 9, 2014
Book Review: Why Smart People Do Stupid Things With Money
In the recent past (a couple months ago), I read Bert Whitehead's Why Smart People Do Stupid Things With Money: Overcoming Financial Dysfunction, and here's some of my thoughts on it.
Whitehead, for the most part, writes in easy-to-understand language for people who may not be familiar with every concept he speaks about. He occasionally goes off into something that, to me, didn't always make sense, or sometimes left things without examples, but I guess that's to be expected sometimes.
One thing I did like about the book, was that Whitehead talked about different Money Personalities that he created by observing his clients. (That link goes to a completely different site since I could not find the personality matrix on Whitehead's own site, which you'd think would have it.) The personalities are The Bon Vivant, The Entrepreneur, The Nester and The Traveler, and each has it's own different quirks and "dysfunctions" about them. While no one thing can pinpoint any one person, the personality types are a great way to get an idea on what makes one "tick" as far as money and to start to identify ways to help direct things the way that is wanted/needed. So that is one positive thing about the book.
However, Whitehead has some distinct things he writes about that I simply don't agree with, and would never practice in my own life or recommend to others. For example, he talks about NOT paying your house off early if you are able to and says instead that you should keep the mortgage for the entire term and put the money into the stock market, giving an example of how much more it can grow over time, etc. While that could be true, there's no guarantee of it, and while a house is NOT an investment and also carries no guarantees, I feel that if you are able to pay off your house early, it's a good idea to do so since at least you'll have a place to live. Suze Orman agrees with me on this.
Another point that Whitehead makes that struck me as odd and I don't really agree with, is that he would like people to "upgrade" their mortgage and take on more debt at different stages of their lives, almost regardless of their need for a different house. If you're making more money, he wants you to upgrade the mortgage to a more expensive one. I don't agree with this simply for the fact that you should not take on more debt just because you may make more money or something changes in your life that DOESN'T require a different dwelling-in fact, if you make more money than when you bought your house, that's a great way to add to your retirement nest egg through your chosen method of investment or savings. If your life circumstances change and you need to upgrade or downgrade, then by all means, explore your options for changing your dwelling and/or mortgage, but not simply because your income increases.
Overall, I think there is some value in some of the information provided in the book-such as the money personalities listed above-but that many things are either so far removed from the average person that they are not entirely helpful or that things (like above) are out of the scope of reality to the point of being bad advice. If using the star rating system, I'd have to say for me, this book falls in the category of 3/5 stars.
Whitehead, for the most part, writes in easy-to-understand language for people who may not be familiar with every concept he speaks about. He occasionally goes off into something that, to me, didn't always make sense, or sometimes left things without examples, but I guess that's to be expected sometimes.
One thing I did like about the book, was that Whitehead talked about different Money Personalities that he created by observing his clients. (That link goes to a completely different site since I could not find the personality matrix on Whitehead's own site, which you'd think would have it.) The personalities are The Bon Vivant, The Entrepreneur, The Nester and The Traveler, and each has it's own different quirks and "dysfunctions" about them. While no one thing can pinpoint any one person, the personality types are a great way to get an idea on what makes one "tick" as far as money and to start to identify ways to help direct things the way that is wanted/needed. So that is one positive thing about the book.
However, Whitehead has some distinct things he writes about that I simply don't agree with, and would never practice in my own life or recommend to others. For example, he talks about NOT paying your house off early if you are able to and says instead that you should keep the mortgage for the entire term and put the money into the stock market, giving an example of how much more it can grow over time, etc. While that could be true, there's no guarantee of it, and while a house is NOT an investment and also carries no guarantees, I feel that if you are able to pay off your house early, it's a good idea to do so since at least you'll have a place to live. Suze Orman agrees with me on this.
Another point that Whitehead makes that struck me as odd and I don't really agree with, is that he would like people to "upgrade" their mortgage and take on more debt at different stages of their lives, almost regardless of their need for a different house. If you're making more money, he wants you to upgrade the mortgage to a more expensive one. I don't agree with this simply for the fact that you should not take on more debt just because you may make more money or something changes in your life that DOESN'T require a different dwelling-in fact, if you make more money than when you bought your house, that's a great way to add to your retirement nest egg through your chosen method of investment or savings. If your life circumstances change and you need to upgrade or downgrade, then by all means, explore your options for changing your dwelling and/or mortgage, but not simply because your income increases.
Overall, I think there is some value in some of the information provided in the book-such as the money personalities listed above-but that many things are either so far removed from the average person that they are not entirely helpful or that things (like above) are out of the scope of reality to the point of being bad advice. If using the star rating system, I'd have to say for me, this book falls in the category of 3/5 stars.
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