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A review by sipho_md
The Wealthy Barber: The Common Sense Guide to Successful Financial Planning by David Chilton
3.0
“The Wealthy Barber” attempts to show that anyone can become financially independent, regardless of their level of income.
The story takes place in a barbershop. The narrator, his best friend and his sister have been referred to the local barber, Roy for financial advice. Roy has achieved millionaire status by applying basic personal finance management principles. These are laid out in the rest of the book.
Key Takeaways
1. Save 10% of income for long term growth. (this is intended to help you afford the “finer” things in life later)
a. Put this amount in equity focused mutual funds
b. Dollar cost averaging – means that even when the fund price is down, you can buy more shares. The market will recover and you will have more shares at a higher price.
c. Problems with mutual funds: market fluctuations (solved through dollar cost averaging), timing (since you’re consistently contributing to a fund, this doesn’t really matter)
d. How to choose a fund? 1 – look at past performance of fund over long periods; 2 – make sure the person responsible for good past returns is still there; 3 – invest in a global fund that invests in a range of industries; 4 – pay attention to the commission; 5 – look for funds that offer value and growth
e. Consider real estate investing as well, but not in the earlier stages of life.
2. Plan for the future by ensuring you have a will and a life insurance policy, if necessary
a. Even single people ought to have wills determining who will inherit their estate
b. Life insurance is necessary only if you have dependents. It provides a way to maintain the lifestyle of your dependents and cover the costs of your burial. Basically, single people and children should have no need for life insurance
c. Difference between term insurance and cash-value insurance. Use term insurance – this expires after a period eg 20 years. If following the other principles, your estate should grow so that you don’t need to renew it after it expires
d. Put as much as you can into retirement now. If possible, put as much as you can into your employer’s plan – if they offer one.
3. You don’t necessarily need to own a home
a. Property is a good investment if you are going to sell. If not, the appreciation in value is rather meaningless
b. Also it might not be appropriate for people just starting out or people who can’t appropriately maintain their homes. In those cases, it may be better to rent
c. Only makes sense if the mortgage is going to be less or the same as the equivalent rental. But how likely is this? Not very
d. Shorter term mortgages are better, but it might not be smart to pay ahead on your mortgage.
4. Budget…or don’t – just so long as you follow the other rules, you will be fine
a. For things besides home mortgages, try to always pay cash.
What did I like about the book?
I found the book to be immensely practical and immediately actionable, for the most part.
Related to this, it was very easy to read. The author did well to avoid using complex jargon. When unfamiliar terms were used, these were explained well.
What I didn’t like?
Sigh. The problem with books like this is they are written almost strictly for an American audience. While this is no fault on the writer’s part, I struggled to relate to many of the laws, policies and analogies given.
Which leads me to my next issue with Chilton’s writing: the dialogue was painful to read. In an attempt to simplify and give the effect of a casual conversation, the banter between the characters is dry and unfunny. If I wasn’t rolling my eyes, I was restraining myself from tearing them out.
I also think it will be difficult to apply all of the advice laid out in the book directly to my current situation.
“Huh? But didn’t you just say…”
Yes, I did.
But here’s the thing: while the book IS practical, it assumes (like most personal finance titles do) that all things are held equal. No economic turmoil, no personal tragedy or long term obligations (other than student and consumer debt) seem to be factored in here.
Finally, the book is dated. The first edition was published in the 1980’s. Nuff said.
In the end, I would recommend Dave Ramsey’s “The Total Money Makeover” for a solid personal finance guide. While “The Wealthy Barber” is okay, it’s not really ground-breaking in any way and suffers from the weaknesses outlined above.
The story takes place in a barbershop. The narrator, his best friend and his sister have been referred to the local barber, Roy for financial advice. Roy has achieved millionaire status by applying basic personal finance management principles. These are laid out in the rest of the book.
Key Takeaways
1. Save 10% of income for long term growth. (this is intended to help you afford the “finer” things in life later)
a. Put this amount in equity focused mutual funds
b. Dollar cost averaging – means that even when the fund price is down, you can buy more shares. The market will recover and you will have more shares at a higher price.
c. Problems with mutual funds: market fluctuations (solved through dollar cost averaging), timing (since you’re consistently contributing to a fund, this doesn’t really matter)
d. How to choose a fund? 1 – look at past performance of fund over long periods; 2 – make sure the person responsible for good past returns is still there; 3 – invest in a global fund that invests in a range of industries; 4 – pay attention to the commission; 5 – look for funds that offer value and growth
e. Consider real estate investing as well, but not in the earlier stages of life.
2. Plan for the future by ensuring you have a will and a life insurance policy, if necessary
a. Even single people ought to have wills determining who will inherit their estate
b. Life insurance is necessary only if you have dependents. It provides a way to maintain the lifestyle of your dependents and cover the costs of your burial. Basically, single people and children should have no need for life insurance
c. Difference between term insurance and cash-value insurance. Use term insurance – this expires after a period eg 20 years. If following the other principles, your estate should grow so that you don’t need to renew it after it expires
d. Put as much as you can into retirement now. If possible, put as much as you can into your employer’s plan – if they offer one.
3. You don’t necessarily need to own a home
a. Property is a good investment if you are going to sell. If not, the appreciation in value is rather meaningless
b. Also it might not be appropriate for people just starting out or people who can’t appropriately maintain their homes. In those cases, it may be better to rent
c. Only makes sense if the mortgage is going to be less or the same as the equivalent rental. But how likely is this? Not very
d. Shorter term mortgages are better, but it might not be smart to pay ahead on your mortgage.
4. Budget…or don’t – just so long as you follow the other rules, you will be fine
a. For things besides home mortgages, try to always pay cash.
What did I like about the book?
I found the book to be immensely practical and immediately actionable, for the most part.
Related to this, it was very easy to read. The author did well to avoid using complex jargon. When unfamiliar terms were used, these were explained well.
What I didn’t like?
Sigh. The problem with books like this is they are written almost strictly for an American audience. While this is no fault on the writer’s part, I struggled to relate to many of the laws, policies and analogies given.
Which leads me to my next issue with Chilton’s writing: the dialogue was painful to read. In an attempt to simplify and give the effect of a casual conversation, the banter between the characters is dry and unfunny. If I wasn’t rolling my eyes, I was restraining myself from tearing them out.
I also think it will be difficult to apply all of the advice laid out in the book directly to my current situation.
“Huh? But didn’t you just say…”
Yes, I did.
But here’s the thing: while the book IS practical, it assumes (like most personal finance titles do) that all things are held equal. No economic turmoil, no personal tragedy or long term obligations (other than student and consumer debt) seem to be factored in here.
Finally, the book is dated. The first edition was published in the 1980’s. Nuff said.
In the end, I would recommend Dave Ramsey’s “The Total Money Makeover” for a solid personal finance guide. While “The Wealthy Barber” is okay, it’s not really ground-breaking in any way and suffers from the weaknesses outlined above.