There are so many personal finance books out there today that it’s often hard to pick one to read that will apply to your own situation. I’m a big reader, but when it comes to non-fiction, it can be difficult to find a book that I will read (or listen to) all the way through. There are parts where my mind wanders as I’m reading or there are parts that I skim or even parts I just skip entirely. A few books on personal finance have managed to resonate with me so much that they made me change my way of thinking and helped me earn more, save more, and live a happier life… so I thought I would share those books with you. Here are my favorite personal finance books!
Your Money or Your Life by Vicki Robin and Joe Dominguez
I’ve noticed that this is a book that is a favorite among personal finance bloggers. It was written about 25 years, first published in 1992, but a lot of the concepts presented in this book still hold true today. The reason I loved this book so much is that it provides a way for people to easily understand the true cost of working and how it literally takes years off of your life.
This book provides an easy way to “calculate” your true hourly rate of pay, and then looks at everything you buy and demonstrates how many hours you need to work to pay for each item in your budget. For example, although you may be getting $15/hour at your job, you aren’t actually getting $15/hour when you receive your paycheck. An average of about 30% of your pay is deductions for taxes and benefits., that drops your pay to $10-11/hour. Then you have to factor in other costs of working such as travel (gas and mileage on your car, parking, tolls, etc.), child care, buying your lunch, and work clothes. Those costs add up, and further reduce your hourly rate. The book provides a nice example of a spreadsheet you can use to calculate everything.
So then, when you look at that $100 pair of shoes you want to buy, and say you determine you net about $8/hour, you have to work 12 1/2 hours to pay for those shoes. It makes you wonder if the things you want are worth the “life energy” you have to put into buying it.
It’s a creative way of showing how many hours you have to work (i.e. your “life energy”) to pay for everything in your budget… your home, your car, food, travel, entertainment, etc. You will soon start to pay closer attention to the things you buy every day and hopefully trim your expenses back just a little bit at a time getting you closer and closer to financial independence.
Total Money Makeover by Dave Ramsey
Although this book’s concepts aren’t 100% relevant to my life, I enjoyed the passion that came through in Dave Ramsey’s writing (especially in the audio book read by Ramsey himself). This book is geared for people that are in dire straits with their finances and need serious help, particularly in getting out of debt.
Through a series of real life examples, Dave Ramsey guides the reader through 7 “baby steps” of tackling their finances in an easy to follow process.
Here are the Baby Steps Ramsey describes in thorough detail in his book:
- $1,000 cash in a beginner emergency fund
- Use the debt snowball to pay off all your debt but the house
- A fully funded emergency fund of 3 to 6 months of expenses
- Invest 15% of your household income into retirement
- Start saving for college
- Pay off your home early
- Build wealth and give generously
I listened to the audio version of this book read by Dave Ramsey, and it was truly inspirational. He is a great motivational speaker and will help give you that extra push to follow through completing your personal finance goals. The one thing to keep in mind about Dave Ramsey is that he is a huge proponent of NOT having any debt, including a home mortgage. Personally, I have finished all 7 steps and am now looking for the next step… maybe it’s living off my wealth, giving my time, and enjoying my financial independence!
This book is a great way to get out of debt and stay out of debt. It really helps anyone makeover their financial situation and live a life that is free from financial stress. One of Dave Ramsey’s best quotes, and one I choose to live by is:
“If you will live like no one else, later you can live like no one else.”
The majority of people are living a life paycheck to paycheck or in debt, so if you choose to live differently than the majority by saving your money and paying off debt, you will soon find yourself financially free to live free, which very few people do. Hopefully reading this book will change your life!
The Millionaire Next Door by Thomas J. Stanley and William D. Danko
This book will give you a better perspective on how different people choose to live their life. Just because someone has a lot of money, does not mean they should inflate their lifestyle to keep up with everyone else. As the saying goes “you can’t judge a book by its cover”, the same holds true for people. Someone that may look flashy and rich could be deeply in debt, while those that shop at Goodwill, live in modest houses, and drive a modest car could be a millionaire living right next door to you.
The terms the authors have created to understand individuals behavior habits around money are Under Accumulators of Wealth (UAW) and Prodigious Accumulators of Wealth (PAW).
UAW’s are individuals that have low wealth compared to their income, calculated by their net worth being less than the product of their age and 10% of their income. A PAW on the other hand, is the opposite, and generally has far more than the 10%. For example, a 45 year old woman making $500,000 should have a net worth of $2,250,000, but a UAW saved far less and a PAW has saved far more. It is a simple concept that shows how a lot of people you think are rich because they make a lot of money may not in fact be wealthy.
This book provides a lot of research on the spending habits of different individuals based on their behavior, and came to the conclusion that the wealthiest people aren’t the white collar professionals in the mini-mansions and shiny new cars, but actually live in middle class neighborhoods, drive older cars, and lead a rather simple life. They are happier individuals without all of the stress of trying to keep up with everyone else. And these people, these millionaires, may be living right next door to you!
Read & Learn
If you want to improve your personal finance situation, reading and learning are critical to your success. You cannot improve, if you don’t continue to learn new things. Additionally, learning new things also has its health benefits too since it can help ward of Alzheimer’s and dementia, as well as lessen your stress and anxiety. [LINK] Overall, reading has been shown to make you a more intelligent individual.
The more you read, the more you know!
There are so many good personal finance books out there, it’s definitely hard to pick just 3. However, these are the ones that always come to mind when people ask me what my favorites are. Your Money or Your Life, Total Money Makeover, and The Millionaire Next Door are all quick reads that will help you improve your life tremendously. You will learn to live a life you are proud of and can help fulfill your dreams and future. I know these books help me identify my true values, and I know they will help you as well.