Category Archives: Money and Life

2013 Personal Finance Reading List For The Attention Deficient

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When a student of mine recently asked for a reading list that could help satiate her budding interest in the intersection of money and life, I was pleasantly surprised and inspired to aggregate a list of titles that met the following criteria:

1)     Not boring

2)     Not long

3)     Not salesy

As you may have suspected, these criteria ruled out the vast majority of those books written in the subject matter, and forced me to expand my search well beyond prescriptive how-to books.  The list is bookended with two novels, but every entry utilizes a fair amount of narrative to communicate its message.  This is vitally important, because regardless of how much the financial industry lobbies to make your financial peace contingent on its proprietary products and processes, personal finance will always be more personal than it is finance:

Warm Up

The Ultimate Gift

Master storyteller, Jim Stovall, has sold over 4 million copies of this book that was turned into a movie and spawned a series of associated books and movies (one of which was co-authored by yours truly).  The original is a novel about a billionaire who dies and attempts to save his grand-nephew from destroying his own life with money.  Although it was never intended to do so, The Ultimate Gift attracted a cult-like following among financial, estate and tax advisors who bought the book en masse to give away as…gifts, pun intended.

Simplifying and Downsizing

Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money

This book is written by a good friend of mine, Carl Richards, who, in additional to being a great financial planner, also writes for The New York Times.  He uses simple drawings to distill the complexities of personal finance in a way that is practical and approachable.

You Can Buy Happiness (and It’s Cheap)

This book is written by Tammy Strobel, a woman who previously worked in the financial services industry and then went on a quest to radically simplify her life.  I doubt that many of us will take it to the extreme that Tammy has, but if you could take just a few of her principles into account as you craft your existence, I think you’d get more out of money and life.

Preach!

The Total Money Makeover

Need your butt kicked into financial shape?  This book, by radio/TV superstar, Dave Ramsey, is my first recommendation for people who are in trouble with debt.  Dave’s message has helped thousands (millions?) get out of debt and live true financial freedom.  And even if you’re not in debt, this book helps lay out a foundation for making sure you stay that way, save enough and keep your priorities straight.  Dave tends to oversimplify some financial disciplines to a fault—like investing—but nobody gives a better kick in the pants to those ready to receive it.

Wealth: Is it Worth It?

You don’t have to like chicken sandwiches to enjoy this book—and even have it change your financial life.  Truett Cathy is the 90-something founder of uber-successful fast food giant, Chick-fil-A, and while he does have a tendency to sermonize, he does so lovingly, and heck, he’s earned it.  (You can read my review of the book and hear an interview I conducted with Mr. Cathy by clicking HERE.)  In addition to much of his own wisdom, he shares feedback he’s received personally from other notable luminaries, like a guy named Warren Buffett, whom I’ve heard knows a few things about money as well.

Exposé

The Big Short: Inside the Doomsday Machine

This book, written by Michael Lewis (bestselling author of Moneyball, The Blind Side and others) is the best explanation of how the financial crisis really played out that you’ll likely find.  And because he’s an amazing author, it’s also very entertaining.  Please be aware that this is Rated R for language—the default vernacular under the pin-striped exterior of the financial industry.  (You can read more of my thoughts on this book HERE.)

Reminiscences of a Stock Operator

This book may be considered THE classic on security trading, but while it is the most technical of my selections, it’s actually a novel based on the life of famed trader, Jesse Livermore.  [Spoiler alert] The hero actually died—at his own hand—virtually penniless after making and losing at least four fortunes.  But while this book was written as a cautionary tale, many in the financial industry have strangely deified it, still handing it to new recruits as a how-to.  The morale of the story, in my opinion, is actually that beating the market is exceedingly difficult and that the voracious pursuit of money leads to, at best, a big pile of money and at worst, death.  Although it’s a great deal longer, I do recommend the annotated edition by Jon D. Markman, which embeds this fascinating story in historical context.

Life Planning—The Most Important Part of Financial Planning

Anything You Want

This is a very short book—more like a manifesto—by a guy named Derek Sivers.  Derek was a rock star who started a company, CD Baby, to help musicians sell their music online.  It became huge and he sold it for millions of bucks…but he donated all the proceeds to charity and moved on to his next project [insert screeching record sound].  You’ll love this short volume.

The Art of Non-Conformity

Chris Guillebeau is a lifestyle/travel blogger—not a personal finance guy—but this is a great book for opening your eyes to the type of career and life you want to have.

The 4-Hour Work Week

Speaking of non-conformity, meet Tim Ferriss.  This book has turned into a phenomenon and a “4 Hour” series by Tim Ferriss.  Read it and you’ll see why.

Life Changing

Same Kind of Different As Me

Let’s finish up with a break from all that wisdom and practical advice to enjoy this brilliant re-telling of a true-story in novel form.  This is really a book about greed and spiritual awakening, co-told by an adulterous big-shot art dealer and a homeless man.  This will break your heart…and then warm it.  Enjoy.

Oh, and I almost forgot…

The Ultimate Financial Plan

Yes, the one financial book that every one of my students is required to read[i] I did co-author, with the aforementioned Jim Stovall.  It’s intended to walk you through a comprehensive personal financial plan in the spirit of The Ultimate Gift’s timeless truth with timely applications you can use to the benefit of your todays and tomorrows, personally and financially.

Most of these books are pretty short and fast reads—I’ve got a touch of (depending on who you talk to) A.D.D. and it takes a really gripping book for me to make it through, but all of these passed the test!  I’d love to hear your thoughts if and when you read any of these, as well as your suggestions to be added to this list that meet the three criteria.

[i] The other required text for my class is the Strunk and White’s The Elements of Style, the short classic writing/grammar book, because one thing most educational institutions forget to tell their students is that if you can’t communicate well, your degree is WORTHLESS!

Less: The New More

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One of the things that frustrates me most about financial planning and financial planners is that it seems we’re simply in the business of helping people accumulate more.  More of everything—cash, stocks, bonds, mutual funds, houses, cars, collectibles and other belongings.  Indeed, how many financial success stories are based on depictions of households who have LESS this year than last?  If anything, the financial industry may be in the business of inspiring a spirit of greed—albeit in the guise of commercials and marketing slicks with beautiful, ageless smiles in ideal settings typically involving sailboats, golf courses and vineyards.  Come pay us to help you get…more.

And I don’t think anyone would deny that we, as a country, bought it—hook, line and sinker—over the course of the 80’s and especially the 90’s, during the birth of the now foreclosed McMansion.  Yes, it was as if an entire generation of Americans consented to hopping aboard a giant hamster wheel of accumulation, all striving toward the imaginary objective of acquiring enough stuff and a pot of money big enough to sustain a comfortable level of consumption through to the grave.  The results speak for themselves: a housing bubble that has left a quarter of the country under water, the corresponding market crash that left a slew of investors without a positive rate of return for over a decade, perpetual car payments and credit card bills, the decline of selfless charity, the demise of the single-income household and millions of workers who abandoned their dream jobs for whatever would pay the most money.

Fortunately, we’re starting to see a shift away from our self-worth being determined by the square footage in our houses, the emblem on our cars or the title on our business cards.  Led by a generational strain more impressed with subjective quality than objective quantity, folks like Tammy Strobel, author of the book You Can Buy Happiness (and it’s Cheap) and the Rowdy Kittens blog, are showing us by example how LESS really can be MORE.  Prone to material minimalism and houses as small as a parking space, they are not condescending or judgmental.  They’re just choosing to live a different way, disregarding much of the supposed accumulation gospel preached by the financial services majority, and inviting a growing community to do the same.

Tammy and her husband, Logan, are both 34 years old, and while she told me it wasn’t a particularly easy transition to go from the life they had to the simplified one they have, it has been a wholly gratifying experience they’d never trade.  A few years ago, they were spending in excess of $70,000 of household income, and they owned two cars and a big apartment filled with stuff.  Now, they live in a tiny house—128 square feet!—have no cars and rarely have monthly expenses in excess of $700.  I’m sure your response to that was similar to mine: “That’s crazy!”  But they have simply chosen to value relationships, community, independence and the most valuable commodity of all—time—over the everyday trappings that dominate most of our lives.

What is to be gained by simplifying life from a physical and fiscal perspective?   It“… allows you to create your own lifestyle, one with the freedom, money and time to do what you love…” according to Strobel.  Sounds an awful lot like the promises offered in a retirement planning pitch, doesn’t it?  But many of these folks are living this unique style of financial independence decades away from a traditional retirement age.

While these simplifiers may be light years away from qualifying for any of the big dogs’ wealth management services, they’re actually living by the foundational precepts of sound, commonsensical personal finance.  And while some may be inclined to dismiss them as a cult of upstart hippies, their behavior is more vintage and classically conservative than nouveau and socialist, most closely representing the habits of our grandparents and their parents.  Those generations actually owned houses they could afford, using mortgages sparingly.  They put in a day’s work and enjoyed the balance of their time with family and friends.  They considered a single car—much less two or three—to be a luxury, and couldn’t have imagined using leverage to buy one.  And they spent more time seeking to reduce their expenses than increase their income.  What a novel notion.

If it sounds crazy for a financial planner to be lauding deleveraging, downsizing and dispossessing, please let me remind you that the goal of the best financial plan isn’t necessarily to have more money…but to have a better life.

Money Vs. People

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Some time back, I tweeted, “Money serves us best when it is a facilitator of relationships, not an end in and of itself.”  A follower replied, “What are your thoughts/suggestions on how to live this out?”  Quite sure that, “I’m not sure, but I thought it sounded good,” was not the response he was looking for, and knowing 140 characters wouldn’t do it justice, I promised to get back to him with the benefit of more page space.

While money has no power in-and-of itself, we do a remarkable job of giving it power and allowing it to come between us in relationships.  If we elevate money to a position worthy of relationship, our relationships with people don’t stand a chance.  This is because the people in our lives are just like we are—flawed and imperfect.  No matter how much they love us, people inevitably let us down, argue with us and hurt us.  Money can’t.  It promises to give us everything we want if we dedicate ourselves to it, and there’s an entire industry out there working very hard to convince us of that (albeit shrouded in snapshots of gorgeous golf courses, picturesque beach homes, keeling sailboats, leaping whales and charging bulls).

How, then, can we practically differentiate between the life-giving, relationship-infusing, beneficial uses of money and the relationship-destroying, life-draining worship of money?  Well, it’s into the gray we roam, but here are three ways we can test our heart on this matter:

1)     Name your loves – What are the first three, five or seven things that come to mind that really set you on fire.  If a noticeable percentage of your loves are NOT persons, causes, movements, vocations or God, but material objects (animate or inanimate), consider red flag #1 raised.

2)     Ask those you love – Hopefully some of the aforementioned loves are people; if so, consider asking them what THEY think critically of your interaction with the almighty dollar.  This takes guts—to ask the question and to give the answer!  Be prepared for a humbling, and don’t bite back.  If, of course, you don’t have any people on the list of your loves or you’re unwilling to ask them this question, consider red flag #2 raised.

3)     Budget for experiences – Even those who claim not to budget must engage in a modicum of budgeting, at least for the mandatory expenses of life, right?—your mortgage, utilities, auto insurance, 401k…(greens fees and salon appointments).   Well, if the loves of your life are genuine priorities—presumably over your mandatory fixed expenses—shouldn’t budgeting for experiences with them be a non-negotiable?  And I’m not just talking about requisite vacations, but also date nights for spouses or sweethearts (not both), “date nights” with your kids individually, taking your parents on vacation, and going on physical trips to support your causes.

One of my foremost mentors in money and life shared a story with me, a confession of sorts that illustrated he valued money above the foremost relationship in his world.  As one of the most knowledgeable financial planners in the country, he dutifully managed the household budget with a keen eye for discrepancies.  And at repeated intervals, his wife spent more than the mutually determined limit for their credit card that was paid off every month.  Every month, she broke the spending limit and he broke her will for doing so.

Until one day, he felt a deep sense of conviction that he should take 100% of the energy he was dedicating to correcting this egregious wrong and instead pour it into his wife in the form of tangible affirmations and expressions of love.  Several months later, his wife came to him in tears, acknowledging that she realized she had been subconsciously sabotaging their budget.  The reason?  She felt his actions and words proved that money was more important than she, but had seen in recent months that it must not be true.

I do believe with all of my heart that money serves us best when it is a facilitator of relationships, not an end in and of itself, but merely acknowledging, understanding and knowing that does us little good.  It’s in the practical application of this truth that our lives—and the lives of those we love—are changed for the better.

The Investment Value Of Facebook Rants

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Does it surprise you how many political experts there are on Facebook?  It’s never ceased to amaze me how willing people are to alienate their “friends”–as well as their real friends–through home-grown social punditry, often based on conspiracy theories rejected by snopes.com.  Yes, you may have garnered nine “Likes” from your pals who subscribe to the same newsletter, but you offended your other 237 online acquaintances, among them the hiring manager for the job you just applied for.

There is, however, a positive side to this jayvee ranting: it shows that we have systems of values supported by worldviews that drive our hopes and dreams.  That’s a good thing.  Where we err is in supposing that external factors–like elections, housing bubbles, financial collapses, European crises and rising education costs–will play a primary role in shaping our personal lives in a fashion we deem optimal.

Now before you start writing that scathing comment telling me how stupid I am for implying these external factors have NO impact on our lives, please allow me to elaborate.  External factors most certainly do have a material impact on our lives, especially in the short-term,  but the primary determinant of our long-term success–even our happiness–is not whether the Occupy or Tea Party movement prevails, but whether or not we control the relatively few factors in life over which we actually have control.

This syndrome is a very common problem in the realm of financial planning.  I’ve listened to intricate stories about external factors that have destroyed someone’s balance sheet, or how an investing newsletter was predicting the imminent end of U.S. currency and the imperative for owning physical gold in large quantities, only to ask the web-weaver the simple question, “So, do you budget?”  “Uhh…no.”  It’s kind of like regaling your dentist on the importance of switching from stainless steel to titanium dentistry tools when you don’t even brush your teeth.

Last week, I suggested that we shouldn’t lay claim to outcomes–positive or negative–over which we lack control.  This week, I’m asking you (and reminding myself) to consider applying less of our finite mental, physical and social capital to external factors we can’t control and instead investing that extra effort in the only entity in this world we really have any control over–ourselves.

Don’t Sell Yourself Short (Or Long)

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Have you ever noticed how likely we are to share our financial success stories, yet how hesitant we become when sharing our financial failures?  Furthermore, have you picked-up on how we tend to attribute our success to our own brilliance but our failure to outside circumstances beyond our control?  If it goes right, we credit ourselves, but if it goes wrong, it’s not our fault.

This syndrome is so common, psychologists have given it a name—the Fundamental Attribution Error—and while we’re inherently averse to recognizing it in our own behavior, it’s the likely culprit in most dysfunction in the realm of personal finance.  But while we might have this innate self-centric orientation, there is something we can do to reconcile our perception with reality.  It’s a little practice called TRUTH.  It often hurts, but it always helps.

Truth has been around for several millennia, but we humans have a nasty habit of running from rather than toward it.  Embracing it is often humbling, but incredibly freeing.  A good friend of mine, Carl Richards, has become a model for truth-telling in the financial industry.  He’s a well-renowned and brilliantly creative advisor who expressed the truth of his own financial missteps to the world in a New York Times article entitled “How a Financial Pro Lost His House.”  He received almost universal support for coming clean, except, interestingly, from the financial planning community, where reviews were mixed and skewed toward condemnation rather than grace.  It saddened me, but it didn’t surprise me from an industry built more on perception than truth.  Fortunately, Carl is undeterred in sharing his story and inviting others to the truth party, to amazing effect.

So, what truth do you need to embrace?  Start small.  Admit that you weren’t actually a stock maven for buying Apple in the low hundreds—you just love your iPhone (or maybe it was an iPod back then).  Then, take a bigger step by acknowledging that you’re not a real estate mogul for buying your house a year before (or after) your now underwater neighbor; nor is he a financial imbecile.

Or has your fundamental attribution error suffered an inversion?  Maybe you’re positioned on the less green grass, suffering from one or more of the punishments doled out by the Great Recession.  You wonder, now months or years unemployed, whether you only ever had a job because you were lucky and are meant, instead, to be an employment reject.  “Maybe I just don’t have anything to offer society, even my family.”  You imagine your short-sale, foreclosure or bankruptcy as a lightning bolt punishment from the cloud-bound Overseer.  “What did I do to deserve this?”  These scripts that run through our conscious and subconscious minds are no more true, and are often a great deal more damaging than financial narcissism.

If it sounds like I may have experienced some of these errors in judgment personally, it’s because I have, and I don’t know anyone who has taken the time to engage in some honest self-analysis in this arena who has determined themselves immune, unscientifically proving the fundamental nature of this attribution error.  An interesting admonishment designed to help us live closer to the truth comes from Martha Beck in The Joy Diet, where she recommends we “create and absorb at least one moment of truth each day.”  Philosopher Dallas Willard suggests—“Earning is an attitude.  Effort is an action.”—and seems to find worth in the latter but little benefit to the former.  Would you, then, consider taking less credit for your successes and failures, instead applying that labor to the work of simply making better (financial) decisions?

Risk Management Matrix App

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This is the fifth exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can find the backdrop for the exercise HERE or just jump right in with the instructions given below:

The best way to see activities through a risk management lens is to go through some ideas of your own, like the example of my car accident, and discuss or jot down the ways in which that risk could have been managed with each of the four methods.  It doesn’t have to be something as dramatic or painful.  It could easily be a risk management success story that you can now better understand.

Examine both the personal and the financial risk using all four of the risk management techniques.  After doing that exercise, discipline yourself to analyze a few other examples throughout the course of your days.  If you’re bold enough, teach the technique to a friend or family member (there’s no better way to learn something than to teach it).  Eventually, it won’t be work, and you’ll see your options more clearly.  Then, when you examine your existing insurance products or new offerings, look for ways you can reasonably avoid, reduce, or assume the risk before paying someone else to do it for you.

Click HERE to access the app!

Personal Principles and Goals

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This is the second exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can find the backdrop for the exercise HERE or just jump right in with the instructions given below:

Deliberate over that which you want to mark your life.  Write down a word or phrase that will be your Personal Principle—your value—and then give a sentence or two of explanation.  These are yours, but I encourage you to share them with a good friend and your spouse, if applicable.  (One of the nuanced difficulties and benefits of marriage is the necessity of allowing your Personal Principles to be folded into those of your spouse.  If your spouse is a willing participant, encourage him or her to complete this exercise as well to develop a set of Unifying Principles for your family.)

You might benefit from reviewing Ben Franklin’s list of personal principles—his “Thirteen Virtues.”  The goal is not to make Franklin’s your own, but to be informed by his intellect, entertained by his wit and inspired by his wisdom:

Your GOALS—especially your financial goals—may be better informed when you complete this entire process, but practice now writing down a few goals that meet the specific, measurable, attainable, and meaningful criteria, then come back to them after completing the full plan series.  Financial goals will then be broken down into specific steps to meet those goals in your Action Plan in the final step.

Your Personal Money Story

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This is the first exercise in a series designed to walk you through an entire financial plan.  The spreadsheet is embedded in an Excel spreadsheet you can download and save for personal use.  You can get the background for this exercise in my Forbes post HERE or just jump right in with the instructions given below:

Write your own Personal Money Story.  What is the earliest memory you have about money, and how old were you?  For many, it will involve some combination of a piggy bank and an allowance or birthday gift somewhere between ages 3 and 6.  Then, rate this experience numerically between +10 for a great experience and –10 for a scarring memory.  Continue this pattern, marking all of the notable experiences you had with money—good and bad—throughout the course of your life.  As you fill in the columns in chronological order, you’ll see the graph begin to populate.

As you reflect on the completed exercise, what story does it tell?  Is it notably fortunate, happy, tragic or sad?  Is it relatively level or particularly volatile?  The answers to these questions might just explain the health of your 401k or your burdensome credit card balance.

As you develop your own realizations about your money beliefs, consider sharing your story with a select family member or friend, especially a spouse or loved one upon whom your Personal Money Story might have a meaningful impact…and suggest they do the same.

The Real Point Of Financial Planning

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Whether you’re a do-it-yourself-er or working with a professional financial planner, the real point of financial planning is often obscured in a process so deep and wide that it’s easy to get lost.  The most prominent mistake in financial planning is to allow the process to be reduced to an exercise in which success is solely derived from a single number—your net worth, today and projected into the future.  In truth, the real point of good financial planning isn’t to have more money, but a better life.

One may argue this point suggesting that more money is simply more…better, that few financial plans have suffered from a surplus of financial resources.  This is true at a moment in time, but the problem with making “the number” the ultimate goal of a financial plan is that it steers behavior to get there.  But that is the point, many of my esteemed colleagues may insist, that we subordinate our todays to our tomorrows in hopes of securing comfort and prosperity in both.  Then I ask you this:

Is comfort and prosperity the chief end of life?

I’m privileged to teach the Fundamentals of Financial Planning at my alma mater, Towson University, and every semester I pepper the class on the first day with a barrage of questions, among them, “How many of you are HERE because you WANT to be here?”  The average positive response is 10% of the class.  Most of them are accounting majors, so I engage them in discussion to determine WHY they chose that course of study.  The primary reason given is to secure comfort and financial prosperity in life.

“So you’ve chosen,” I ask, “to dedicate four-to-six years of your life becoming educated sufficiently to spend the bulk of your waking adult hours thereafter in a job you don’t particularly love to hopefully secure financial prosperity?”

Unfortunately, too many financial planning processes look just like this.  They begin with numbers and back into the actions—and life—necessary to achieve those numbers.  Planners may justify this by disclaiming that the client dictated the data (in the questionnaire designed to force the client into a box that can be managed by the planning software du jour).  The recommendation is simply the output.  But that’s because the process is backward.

It should start, instead, with three simple questions:

  1. WHO are you?
  2. WHAT do you want to be about?
  3. And, WHY?

Then and only then should the numbers come into play.  And the numbers shouldn’t exist to extinguish the who, what and why, but to support them.  If I’m really a good teacher, I may have to recommend you consider an alternative educational or vocational path.  If I’m really a good planner, I may have to recommend a course of action that could have a negative impact on your bottom line—today and in the future—but which leads to a better, more fulfilling life.

At best, the benefit of financial planning is minimized when reduced solely to a process intended to give you more money, today and in the future.  At the very worst, such a process could temporarily or permanently derail your entire plan for life.

Your financial plan must submit to your plan for life.

In the coming weeks, I’m going to take you on a blog journey through an entire financial plan, including an examination of topics you’d expect—like how to judge your investments and determine how much life insurance you should have—as well as many you might not anticipate—like how to create your own Personal Money Story and articulate your Personal Principles.  We’ll discuss everything from homeowner’s and disability income insurance to navigating death and taxes.

Each week’s blog post will be on a different topic, building on the last, and will include online exercises you can download (at no cost) for your own personal use in developing your financial plan.  It’s not designed to supplant the intangible benefits of a personal financial planner, but to be a starting point, a supplement and/or a second opinion.  And throughout, we’ll work to maintain the real point of financial planning—a better life.

The Most Important Love Letters You’ll Ever Write

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You don’t want to write estate planning documents because you don’t love meditating on the prospect of your own death.  Sure, you might think you’re mature enough to face that eventuality and plan responsibly to care for anyone or anything you might leave behind.  But even if you’re perfectly cognizant of your own mortality and confident of a secured eternity north of the border, you may not rank a discussion on splitting up your worldly assets and responsibilities with an attorney particularly high.

But your estate planning documents aren’t for you.  Think of them as the most important love letters you’ll ever write.  Find inspiration in knowing that you’re caring for the people and causes you love, even if you’re not here anymore.

The most important recommendation in every financial plan is successful completion of thoughtfully prepared estate planning documents.  So, no matter your age (unless you’re still a minor), marital status or net worth, you need to be considering how to write your WILL, DURABLE POWER OF ATTORNEY and ADVANCE DIRECTIVES.

Here is an estate planning crash course in the form of three videos addressing each primary document in under 90 seconds.  Enjoy!  (Then, act.)

 How to Create a Will in 90 Seconds or Less

 

How to Create a Durable Power of Attorney in 90 Seconds or Less

 

How to Create Advance Directives in 90 Seconds or Less