In celebration of Financial Literacy Month, we’re kicking off our personal finance book review series! Every week for the next month, we’ll be reading one of our favourite Canadian PF books and telling you all about it. Stay tuned for next week’s read and get started with our first pick.
Book: Stop Over-Thinking Your Money! The Five Simple Rules Of Financial Success
Year published: 2014
Author name & bio: Preet Banerjee is a well-known Canadian personal finance and investing expert, Globe and Mail columnist, host of OWN's TV show Million Dollar Neighbourhood, and author of the popular blog WhereDoesAllMyMoneyGo.com. And if you follow Preet on Twitter @preetbanerjee, he’s quite the GIF connoisseur, which is something I appreciate in my finance experts.
What’s this book all about?
This book is the Don’t Sweat the Small Stuff guide you have always, always wanted for your money. Instead of getting into the nitty-gritty about your latte budget or cutting your cable bill, Preet focuses on the five biggest wins you can make in your financial life and stops there. If you master those, you’re so far ahead of the game that you can go ahead and buy the damn latte.
Who should read this book?
Can I say anyone? ...No? Too general? OK, fine.
This book would be a perfect fit for someone who only wants to read one personal finance book and come out of it with the skills and knowledge they need to score, in Preet’s words, an “easy A” when it comes to their money. Sure, you could spend an entire career getting deep into the nuances of stock picking or watch every single penny you spend, but if you want the good-enough approach that will set you up for life? This is it.
It’s also a great resource for people who are just starting their careers and might not prioritize spending money on a financial advisor just yet. Preet walks you through the major ways you can set yourself up to win at money, and if that’s all you did for the next ten years, you’d be in a very good spot when you were ready to pay for professional advice.
3 biggest takeaways
1. You need to get your disability insurance situation handled.
Preet’s very first guideline is to disaster-proof your life. There are a few steps you need to take to do that, and I felt pretty good when I read them because I’ve already got some of the disaster-proofing handled.
Ahem, except for the whole disability insurance thing.
Preet makes the (incredibly accurate) point that when you’re young, your biggest asset is your future earnings. If you lose that by losing your ability to work… yikes. Luckily, that’s where disability insurance comes in and saves the day — as long as you have it. If you’re injured to the point where you can’t work, it pays a monthly sum for your entire coverage period.
I know I have a disability policy through work, but when I really looked into it, I didn’t know a lot of the crucial details. Could I convert it to an individual policy if I left? What conditions are excluded, if any? Can I be denied coverage? How long do I have to be out of work before it starts to pay? What age does it cover me until?
These are the questions I need to answer, and some of the questions you need to ask if you’re shopping for disability insurance. (Which, if you don’t have it already, you’re doing right now, right?!)
PS. Here are five other insurance policies you should definitely have.
2. No matter how many stock-pickers tell you they’re totally going to retire on this penny stock someday, your index investing strategy is fine.
If there’s one thing I know I have zero interest in, it’s actively managing my investment portfolio. I know myself well enough to know that trying to choose individual stocks would stress me right out.
Even so, it can be hella tempting when you hear people talk about their 50% (or higher) returns on this one hot stock, especially when the whole world reinforces that, somehow, picking stocks is the real way to be good at money.
Preet brought me right back down to earth with a healthy reminder that picking good stocks is the advanced level, and you can be great at money without spending that much time learning about the stock market. My low-cost, match-the-market approach is just fine.
3. Focusing on the gap between your income and your spending is one of the highest-impact things you can do.
Saving gets a few shout-outs throughout the five guidelines — as it should — but I’m glad to hear that my focus on increasing the percentage of my income that I save every month isn’t entirely misguided.
Preet offers some compelling evidence for the fact that saving, not investing, is going to be the real driver of wealth accumulation in your 20s. No, not because investing isn’t important, but because if you bump up your savings by $100 every month, you can rely less on investment returns to hit the same end result: meeting your savings goal.
For millennials like me who are juggling what feels like a zillion savings goals, most of which are short-term and not invested in the stock market anyways, this is excellent guidance.
Favourite quote from book
“People who consider themselves to be well-informed are generally the ones who watch the business news, read the business section of the newspaper, and follow a few financial blogs. All three of those media put little emphasis on financial planning and lots of emphasis on investing. It has been burned into our heads that investing prowess is equated with good money management.
I call bullshit.”
Image courtesy of Bogdan Pavlik.