Those of you who have been reading this blog for awhile might remember that my favourite all-time personal finance book is The Wealthy Barber by David Chilton (released in 1989). Since it sold over 2 million copies I’m going to assume I’m not the only who thought it was pretty good. I’m fairly certain that 90% of everything a person needs to know about personal finance can be found in those pages. So obviously when I heard Chilton was about to release a sequel to his personal finance gospel, I was pretty excited. I was so pumped I immediately emailed the man himself and asked if I could receive a review copy, I was actually fairly surprised he said yes, since we are still a fairly small player in the immense blogosphere, but Chilton immediately responded he’d be happy to send me an early copy.
The Wealthy Barber Returns - Not Really A “True” Sequel
After receiving it, I buzzed through the book in a couple of days. As you can tell from my borderline Chilton-worship I’m definitely going to recommend the book. Before I get into all the reasons why the book was great, I will say that my lone disappointment was that Chilton didn’t find some folksy narrative to tie it all together like he did in the original. I realize that the narrative has no relevance whatsoever to the quality of financial information located within the pages, but The Wealthy Barber it just such a cool way of explaining “dry” personal finance concepts, I was hoping for the same ingenuity. While Chilton decided not to bring back Roy the barber, he does manage to keep his common-sense approach and down-to-earth communication style that make the book a pleasure to read (even if it isn’t quite as good as the original).
Debt Is NOT Our Friend!
In The Wealthy Barber Returns, David takes on the newfound addiction to debt that society has embraced since he released his best-seller. A large part of the book is spent rightly reminding people how toxic debt can be to financial planning, as well as asking how much “stuff” people actually need. He admits to the fact that he could have placed a higher priority on tracking costs in the original, and says that over-borrowing is likely the biggest danger most individuals face in today’s consumer-driven world. I find it interesting that Chilton (and every other personal finance writer out there) is placing more and more emphasis on saving, while Maclean’s magazine just did an article on why savers have been getting screwed by spender-dominated government policy the last decade or so. The bottom line on debt and how it can quickly compound is just so simple to me, I’m not quite sure how so many people can screw it up not just a little bit (we all make mistakes), but by such a large margin!
Best “Potpourri” Section Ever
The second part of The Wealthy Barber Returnsis random set of neat little tips and stories that present a ton of valuable insights in a “in your living room-style” that only Chilton seems truly able to pull off. My personal highlights from this section are:
-Chilton’s take on why teachers (I happen to be one… at least that’s what my contract says) are so fiscally conservative. Humorously, Chilton goes on to say that he knew something was about to pop in the stock market in 2007/2008 when teachers were asking him if they should borrow money to invest. In other words, the most accurate measure of an overheated economy is when teachers want to talk investing!
-The Wealthy Barber-view on home renovations saying, “The four most expensive words in the English language: ‘While we’re at it…’ the four most expensive letter? HGTV.” Stop and think about how many people start with one room and end up redoing their whole house on 3x the original budget.
-The affirmation for my love of compound interest, the Rule of 72, and the Einstein quote about how powerful it is.
-Near the end of the book Chilton throws in a great quote from another financial planner. He states that he now uses it when people inevitable ask him about paying down their house debt, or saving for retirement. When this financial planner was always asked, “Should I pay down my mortgage or invest in an RRSP/TFSA,” he simply responded, “Yes. Immediately!” I love the simplicity of the answer in conveying the important thing is the saving, not necessarily the small advantages gained by one over the other (I’m still a believer in the long-term returns of equities relative to the return on paying down a mortgage btw).
Investment Advice… Kind Of
Finally, Chilton admits that in The Wealthy Barber, he might have been a little quick to support mutual funds in his original volume. In his defence, at the time Chilton wrote the book mutual funds were getting ridiculous year-over-year returns. Now Chilton speaks to the benefits of making sure investors keep management expenses low if they are going to use actively-managed funds. He also gives an amusing and effective example of why index funds work so well. To poorly paraphrase Chilton, if his mother invests in the same market as George Soros, Warren Buffet, and Charlie Munger, by investing in an index fund of the other three managers she is guaranteed to do as well or better than one of the three greatest investment minds in the business. The other humorous, yet effective investing tale that Chilton tales is of a successful investor that only bought dividend-yielding companies that made products he bought even though he hated them. In its own way this is really just a funny adaption of the Munger-Buffett, “Buy businesses that have a competitive advantage.” Like the recent review by The Wealthy Canadian pointed out, I too wish that Chilton gave us a little more indication as to what his investments have been over the last couple of decades, what his results have been, and what is current methods are. But hey, that’s definitely nitpicking so I can at least say I attempted a balanced review. Buy The Wealthy Barber Returns and you won’t be disappointed!