10 Financial Tips From The Wealthy Barber
I am on a big financial goals kick recently. I love learning about tangible steps I can take to better my finances. The best financial resource book I have read so far is The Wealthy Barber by David Chilton.
The best part about The Wealthy Barber has to be a tie between the relaxed way it reads, and the ease of the instructions. The book reads like a fictional story, but the tips are very real and you don’t have to be a math whiz to understand and implement the suggested strategies.
I am a bit late to the game on enjoying this book. The Wealthy Barber was originally published in 1989 and it sold over a million copies, so it is clearly well-loved.
I put together the top 10 tips I took away from my reading, some of them remind me of the financial advice my dad gave me as a kid… turns out he had read the book as well!
The 10% Solution.
I think it is fair to say that we all want to have the finer things in life. The Wealthy Barber’s advice on how to get those finer things, like the home in Italy or the fancy car, is to put away 10% of your income every single paycheque. To be clear, this money is not to retire with or to buy a house with. This money is to achieve a better life, later in life.
Ideally, this 10% should be put into a mutual fund that you don’t think about too much until interest and time has done the work for you. For mutual fund advice, ask a financial advisor or do some research (blogs are great!)
Pay yourself first.
For every investment or saving, be it retirement or your 10% solution, ALWAYS pay yourself (put money into savings) before you start spending money for the month. I have an automatic transfer come out of my account the same day I get paid to make sure I pay myself before my bills.
Make a will – now, not later.
As soon as you have any assets like a nest egg of savings or a car/house/etc, be sure to have someone draft up your will. If you don’t have a will and you were to pass, your assets might not go where you want them to – potentially leaving your loved ones without financial support.
Know how much life insurance you need (or don’t need).
Life insurance is set up to 1. pay off your debts, and 2. support any of your dependants if you were to die. Knowing this, it can be a good idea to know how much money your life should be insured for. For example, if you are a single person with no dependants or debts, you don’t actually need life insurance, while if you have a partner who depends on your income you will need enough insurance to keep them supported.
Retirement will take some research.
The best way to save for retirement is to look into what is available to you. Does your job have retirement saving options? Do you have an RRSP? This is one area in which doing research and shopping around is a really good idea. Oh, and start early as possible!! Like, right away!
It is possible to buy a home.
Saving for a home can seem nearly impossible with today’s market. But if you take advantage of things like government grants (the first time homebuyer’s grant in BC for example) it really is possible to get a downpayment together. (Remember, pay yourself first!)
A dollar saved is two dollars earned.
We often can find the time to make a bit of extra money here and there, but we seem to try and avoid finding ways to save ourselves money. Which is unfortunate because when you make money, your income is taxed and often there is insurance etc. taken off as well. But when you save money, you don’t have any of that taken off, so the money you make when you save is actually worth more to you than the money you earn.
Live within your means.
Although I personally love a good budget, The Wealthy Barber advises that as long as you pay yourself first, ensure your 10%, retirement, basic needs and insurance is taken care of, you don’t need to have a strict budget. The answer is simple: live within your means.
If you make $40,000 per year then don’t buy a $25,000 car. A simple way to do this is to always save to buy. Never borrow money for items like cars or trips, and instead, save until you can buy it outright.
Always pay off debt before investing.
If you come into some extra, unexpected money, don’t invest it. If you get an inheritance for example, the best bang for your buck is to pay off any non-taxable debt. This includes your credit card or car loan debt. Perhaps not your mortgage, but definitely the non-taxable debt. The rate of return that you would have to get on an investment that would make it worth keeping debt is too high.
Establish an emergency fund.
Everyone sleeps better when they are not panicked about a potential car problem, for that reason, it’s a great idea to have an emergency fund of $2000-$3000 put aside for a rainy day. This ensures peace of mind and that is really what a financial plan is all about.
And those are the ten tips I took away from The Wealthy Barber — I loved the book and I cannot recommend it enough. Keep in mind that the book is fairly dated in some ways and many pieces of advice apply exclusively to the United States, but besides that the book is essential. Almost as essential as paying yourself first.