Two Books that Will Change Your Financial Life

I get asked all the time if I can recommend a good book on money management. I can actually name two, but more on that in a minute.

I have read hundreds of books on all sorts of financial topics -- general money management, investing, retirement, and on and on. Unfortunately the vast majority of them aren't worth the paper they are printed on. They are poorly written and contain little valuable information.

That said, there are many books that stand out for one reason or another -- and I mean this in a positive way. They do have good information and are worth anyone's time in reading.

However, there are only two books that I believe warrant a whole-hearted endorsement from me. They are both general money management books and both, if read and applied, will change a person's financial life for the better (they have changed mine, that's for sure). In fact, if applied over a lifetime, they will almost certainly make a person wealthy.

The Millionaire Next Door

I first read The Millionaire Next Door: The Surprising Secrets of America's Wealthy shortly after it was published in 1996. I was out of graduate school, married, and a few years into my career. I had been working on eliminating debt from my life (yes, including my mortgage), but this book pushed my financial vision into over-drive.

The book's message is that most millionaires in America aren't the ones living in huge homes, driving expensive cars, and taking extravagant vacations. In reality the average American millionaire is just your typical guy next door. He's unassuming and someone most people would never pick as being wealthy. That's what made this book such a phenomenon -- its findings turned conventional thinking on its head.

The book highlights seven common denominators among those who successfully build wealth. They are:

1. They live well below their means.

2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.

3. They believe that financial independence is more important than displaying high social status.

4. Their parents did not provide economic outpatient care.

5. Their adult children are economically self-sufficient.

6. They are proficient in targeting market opportunities.

7. They chose the right occupation.

After reading the book, I applied every one of the learnings above except #5 (since I don't have adult children). And my finances benefitted greatly from doing so.

The Richest Man in Babylon

Shortly after reading The Millionaire Next Door, I stumbled upon The Richest Man in Babylon: George S. Clason's Bestselling Guide to Financial Success: Saving Money and Putting It to Work for You, an equally life-changing personal finance book.

The Richest Man in Babylon is a parable of a wealthy man in ancient Babylon who gives a friend "seven cures for a lean purse" as follows (along with a summary of each):

Cure #1: Start Thy Purse to Fattening - Save 10% of your income.

Cure #2: Control Thy Expenses - Keep spending low.

Cure #3: Make Thy Gold Multiply - Invest to grow your wealth.

Cure #4: Guard Thy Treasures from Loss - Don't lose money when you invest - protect your principal.

Cure #5: Make of Thy Dwelling a Profitable Investment - Own your own home.

Cure #6: Insure a Future Income - Turn your wealth into a retirement income.

Cure #7: Increase Thy Ability to Earn - Study to become wiser so you can make more money and manage it better.

Just look at those tips! All of them are extremely solid! I think we've heard a lot of these from the millionaires we've talked to.

Applying the concepts in these two books did one thing for me: made me a much, much better money manager. But really, if a person just read and applied either one of them over a decent period of time, he would be wealthy.

That's why I can wholeheartedly recommend these books to ANYONE looking for a good book on personal finances. If you haven't read either of them, do so immediately. Then do your loved ones a favor and have them read these -- especially your kids, relatives you have that are graduating college and high school, and so forth. Doing so will change their lives forever and the earlier someone begins applying these principles, the better!

Comments

[kevin]

I agree they are both great books.

[JeffinWesternWa]

the Millionaire Mind was a geat follow-up to Next door for those so inclined for a more "in depth" look btw....

[Mr. Everyday Dollar]

Those are great books! I'd like to toss in Your Money or Your Life as well. It had the most profound impact on me because of its concept of life energy - which we choose to trade money for.

It also prompted me to start closely tracking my income, expenses, and portfolio which has helped motivate me to reach the "cross-over point" as soon as possible.

[Kathy S.]

I agree with your choices but I needed the Dave Ramsey 'Total Money
Makeover' book. It gave me the actual monthly steps to re-organize my
entire thinking. I spent a long time on Step 2 but it was worth it.

[Marc Bautis]

Both are great books. Another one I would add to the list is Learn to Earn by Peter Lynch. It is a little more focused on investing, but still has some great basic pillars for improving your personal finance

[doug]

I agree 100% with your choice of "The Millionaire Next Door" as an excellent financial life book. I have bought several copies over the years to loan out to people to read. I often don't get them back; I'm hoping they get passed on to other people. I think that people need to understand this book doesn't contain a list of things to do to become wealthy, but rather changes your thinking about what wealth really is and who has the wealth in America. Just think about all the multi-million dollar salary athletes out in the world that you hear are broke a few years after their careers are complete. It should be a book every kid gets when they leave home to begin their own life journey.

The second book I would recommend is "The Wealthy Barber" written by Canadian David Chilton. It is written as a story but contains a very important message on how to structure your life to win at managing and growing your financial assets. I believe that if you follow Chilton's road map, you will never get lost.

I also agree that the bookstore's shelves are filled with hundreds of useless books on personal finance. Everything you need can be condensed into a few pages. It is not difficult. The hard part is taking the first step to your financial goal and sticking with your plan.

[doug]

I have to also comment on Dave Ramsey's books and philosophy. I agree that Dave's strategy is very useful for people who are struggling with debt and never seem to have a nickel in their jeans. However I think he misses the mark for the rest of us who pay off our credit cards each month, save a percentage of our income, etc. If you are in the second category, I would not follow all of Dave's recommendations. That being said, I appreciate what he says and try to incorporate some of this philosophy into my own. I do have a credit card, but don't consider myself stupid. Dave Ramsey would disagree with me.

[getagrip]

I liked both these books and will also add a plug for the wealthy barber and your money or your life. The first for including discussions many don't think about while young (e.g. wills) and the second for the idea of seriously thinking about what you are really working for with regards to your wealth.

Too often people just want to be "rich" without a clue what "rich" means. To many it's an unrealistic salary, or an unattainable amount of money, and they have this idea if they can just make X a year or win X in a lottery they'll have "made it". I liked that all these books put wealth into perspective and allow you to define for yourself what "rich" is, which to me is more about financial independance than a dollar amount or the bling of what your own.