The Last Personal Finance Book You’ll Need
There are some unfortunate genres, such as self-help books, that are littered with crap. Personal finance books are another field of dreck. Let’s not name names. But in the former I shy away from cheesy, desperate, unctuous, and superficial books; and in the latter I pretty much avoid…the same.
Good news. The last six months have been a very good time for finance books, with a new release capping this encouraging phase. Any discussion must start by touting Eric Tyson and his lovely Personal Finance for Dummies. This book certainly isn’t new, but it occupies a special place in my heart—not simply as the best of the (often dismissed) Dummies line, but as an excellent blend of wisdom and practicality and clear advice on how to proceed.
But what’s new? First off, three titles from Portfolio. Last year Jean Chatzky spoke to us about her new, excellent book Pay It Down: From Debt to Wealth on $10 a Day. Her publisher has wisely reissued her prior book The Ten Commandments of Financial Happiness: Feel Richer with what You’ve Got, which is another smart guide that addresses the key human and emotional aspects that lead to financial discipline, and health.
Add to this list the clever Bad Debt, Good Debt: Knowing the Difference can Save your Financial Life from Jon Hanson. Debt, says Hanson, is neither good nor bad. It simply is. Having too much is bad, while having a manageable level in terms of the overall picture is acceptable. His book benefits enormously from his perspective, as he shares how himself was plagued by the demons. He speaks as one who learned his lessons from hard experience. A smart and engaging read.
But the real deal is All Your Worth: The Ultimate Lifetime Plan by Elizabeth Warren and Amelia Tyagi Warren.
Why? This book raises the bar for all other personal finance books by shifting the way in which it is discussed. These authors have a fundamental understanding of both the economic context driving household decisions, and the individual makeup that often leads people to poor choices. They deal with both threads, and in the process present the challenge of managing money proportionally in the scheme of life. Their core argument is that people must balance their financial life—to allocate wisely between essentials, wants, and savings. Sure, this sounds like common sense. But when is common sense common? And how many of us really do live by a consistent set of financial principles?
Principle is actually the key word here. For while the authors share a wealth of tips, many of their tactics, while wise, feel almost perfunctory, an almost tacit admission that so much financial advice is a mere intellectual commodity. These authors seem more comfortable drawing from a deep and abiding set of principles culled from experience. Mom teaches bankruptcy law at Harvard Law School; daughter is a former consultant and HBS grad. Together they wrote the The Two-Income Trap: Why Middle-class Parents Are Going Broke, a brilliant book detailing the vast changes in the personal finance landscape of the past two decades. The rules have changed profoundly, they argue, for most Americans. Paying for the essentials of life, such a mortgage and health care has become a more difficult challenge for myriad reasons, among them a different attitude about lending standards.
Their background deeply informs this personal finance book. They understand the primary importance of establishing a budget that deals with first things first—the essentials of life that occupy a disproportionately high a percentage of spending for too many Americans. They focus their advice on achieving a balance of paying for essentials, for fun, and for savings. Their advice doesn’t offer trivial solutions to profound problems (by showing how to clip coupons for example.) It helps people stay focused on the most important financial issues that rule their life.
The enduring value of this book comes from a sensible, informed, and even passionate voice of reason about how individuals today can make the right financial decisions. Moreover, given the current march of the terrible bankruptcy bill in congress, the book couldn’t be more timely.
To read the intro to the book, click here. And, click here for an author Q&A.
- What is ALL YOUR WORTH about? We lay out the new rules of money—the rules that have changed since your parents were young, the rules nobody talks about. Then we use those new rules to build a lifetime money plan, a strategy to get control over money once and for all. All Your Worth shows its readers how to get out of debt, how to cover the bills, and how to start getting ahead—all without needing to pinch pennies or carry a calculator. This book is about taking control right now and keeping control forever.
- Who did you write this book for? This book is for anyone who worries about money. Whether you are knee-deep in past-due notices or you just don’t think you’re saving enough, we are here to help you figure out what is wrong and fix it. We think of this as the sleep-tight book because it shows you how to develop a workable plan that will chase worry away.
- The main crux of ALL YOUR WORTH is the concept of “balancing” your money. Can you describe what that means? You’ve heard of a balanced diet, with enough of each of the basic food groups. Balancing your money follows the same general idea. When your money is in balance, you are spending the right amount in each of your major expense categories. You have money for what you need, like your house and your insurance. You have money for savings, so you can get ahead and start to build some real wealth. And you have money that’s just for fun, because life is about more than just boiled vegetables! A crash budget doesn’t work any better than a crash diet; getting your money in balance is about creating a sensible approach to managing your money that can last you an entire lifetime.
- So what is the Balanced Money Formula?This is the bull’s eye, a model for a lifetime plan for your money:
- 50% of your take-home income goes to your Must-Haves, like your mortgage, car payment, groceries and insurance.
- 30% goes to Wants. This includes all the stuff you want -- but don’t really need -- like restaurant meals, new clothes, vacations, and new gadgets.
- 20% goes to your Savings, which includes saving for retirement and all your other dreams, as well as paying off your old debts.
We have had some really startling results when people have compared their own numbers to the Balanced Money Formula—they can see in one glance exactly where they are out of balance, and exactly what needs fixing.
- How does “balancing” your money differ from other financial advice? A lot of advice books just talk about the edges, telling you to “Cut back here” and “Trim over there.” That’s a little like planning a diet by saying, “Cut out cookies” and “No sugar in your coffee.” This approach may (or may not) help for slight modifications, but it is not a real plan. We help you take stock of all your money, and then we help you build a money plan that is flexible enough to last a lifetime. This advice isn’t based on gut reasoning or lucky guesses; it is the result of over two decades of intensive research, drawing on the experiences of literally thousands of people from across the country.
- What are the new rules of money? When your parents were young, odds were that if they got a decent job, bought a normal house and didn’t go nuts with spending, everything would turn out just fine. They could build up equity in their homes, save plenty of money, and retire in comfort—not because they were thriftier or smarter, but because the rules of money were different. Today, you have to be a lot smarter about money. There are big banks urging you to take on more credit card debt than you can manage, mortgage companies offering to lend you money to buy a house you can’t afford, skyrocketing costs for health insurance and college tuition, companies turning employees into “consultants,” and a lot more pressure to provide for your own retirement. In the new rules of money, you can’t sit back and hope that everything will work out; you have to take control over your financial future. That means you have to ignore all those big banks and mortgage companies, and you have to decide for yourself what you can really afford. Anyone who doesn’t master the new rules is standing in the middle of a six-lane superhighway, hoping not to get hit.
- Who is affected by money worries? Last year, the number one New Year’s resolution was to get out of debt. Right now 44 million Americans make the minimum monthly payment on their credit cards, and over 60 million report that they worry about making ends meet. Deep down, every single one of these individuals is scared. Fear and anxiety about money can be found everywhere. High income and low income. Men and women. Single, married and divorced. Neighbors, friends and family. People everywhere are worrying. Can I get out of debt? What would I do if I lost my job? How will I send the kids to college? Can we ever buy a house? The details may change, but the gnawing fear that it won’t be possible to hold it all together, that it could all be taken away, haunts the nighttime hours of tens of millions of people. This book is based on mountains of research, and it tackles head-on the heart-pounding financial worries of ordinary Americans.
- Various statistics show that money is the #1 issue that couples argue about and even get divorced over. What advice do you have for couples who fight over money? Number One Best Move: Fun money for you, and fun money for your partner. And then (and this is really important) no questions asked. You need a little free space in your life, and it is the same with money—you also need some free space in your wallet. So no matter how broke you are, you should budget a little fun money for each of you that you can spend however you want. She wants to spend hers on high fashion sandals and he wants to spend his on power tools; she wants to spend hers on archery lessons and he wants to spend his on silk underwear. It just doesn’t matter. Giving each other some free money will take the pressure off your relationship. Besides, people who are having a little fun are more fun to be around. (Try kissing a guy who is wearing silk undies!)
- How does your new book ALL YOUR WORTH differ from your previous book THE TWO INCOME TRAP? The Two-Income Trap told the story of millions of decent, hard-working families who struggle financially every day, and it explained why today’s families are working harder than ever but still falling behind. The focus of The Two-Income Trap was on explaining the problem and presenting policy solutions. All Your Worth starts with a different question: What should people do to protect themselves and build a brighter financial future? This book is focused on practical advice that people can use in their own lives right here, right now.
- This is your second book together as a mother-daughter author team. How did you come to start writing together? Elizabeth: I wanted to hold the baby! I had a ton of new research, and I was trying to make sense of all of it at the same time that I went to help Amelia with her tiny new baby. We talked about the funny rash on the baby’s neck for hours, but finally we started talking about the new data. Amelia started sitting at the computer writing notes and looking for other data online. The more she worked, the more I got to hold the baby—and vice-versa. We were well on the way to a book without even noticing.
- How has your writing partnership changed your relationship? Our lives are knitted together in new ways. The tiny baby from the last book is a preschooler now, and another baby is on the way. That makes us both moms, and both concerned for the welfare of someone very small and vulnerable. We have two joint projects—this book and our earlier book, The Two-Income Trap, and both the books and the babies have brought us closer. We spend hours arguing and researching, rethinking and rewriting, but we always come back to the same point—each of us knows that the other’s heart is in exactly the right place.
Posted by Tom Ehrenfeld at March 23, 2005 01:38 PM
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