Recommended Books on Personal Finance

Roll your eyes if you must, but someone asked me for this!

Most personal finance web sites are for people with above average incomes. You can tell because they always assume you're in the 28% tax bracket. I recently learned that I am now making an above average income, and I am still in the 15% tax bracket, so that's why I say that. The following books can be helpful no matter what your income.

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Personal Finance for Dummies, by Eric Tyson

This is a decent general all-around book. Nothing too weird, nothing too stupid. (I don't own it, or I'd give you a quote to help you decide what you thought. But it should be easy to find in libraries.)

The Complete Tightwad Gazette by Amy Dacyczyn

This is my all-time favorite personal finance book.

It started off as a newsletter, which then got published as a book, and then a second and then a third volume were published, and now you can get all three in one. I also recommend reading it if you can find only one volume, especially the first or second.

This book is only about frugality, nothing else. That's a one-sided view of personal finance, but I feel it is the side that Americans know the least about, and so it is the most exciting for us to read about.

Ms. Dacyczyn (pronounced "Decision") is extremely frugal too. So you will not read a bunch of annoying ideas that are worse than what you already do. I once heard a case study on the radio about some woman with money troubles, and they recommended that she get a cheaper apartment (which cost more than what I was paying), eat out no more than once a day, etc.

In this book you will read about things you never thought of before. Or if you've heard of them before but thought they were weird, you will get a convincing explanation about why they can be a good idea for some people, maybe even you.

Ms. Dacyczyn got into frugality when she decided that she would like to be a stay-at-home-Mom with lots of kids in a farmhouse in the country with attached barn. Sound impossible? Her family did it!

I am a compulsive tightwad. People who know me believe that I worry too much about money, that I don't spend enough on myself, and that I don't know how to have any fun. Even depression-era relatives think that I am too thrifty. One Christmas an aunt gave me two boxes of aluminum foil after learning that I recycled the stuff. (I made it last for years.) ...

In 1989 we realized our dream. Our family (then it was four children; now, with advent of twins two years later, it's six) moved into our rural pre-1900 New England farmhouse (with attached barn).

Were we too thrifty?

When we got married, our joint financial assets barely paid for the budget wedding. We owned almost nothing. In other words we started from zero.

Over the years our average income has been less than $30,000 (including my husband's Navy salary and allowance, plus my spotty free-lance income). In less than seven years we saved $49,000, made significant purchases (vehicles, appliances, furniture) of $38,000, and were completely debt-free! ...

Without a down payment we would have been able to buy only a small starter home. Instead we purchased a wonderful house that exceeded our expectations, a house vastly superior to the 176 other houses we saw during a 15-month period. If we had saved a few thousand less we would not own it today.

No, we weren't too thrifty.

When you get into the book, you see that she throws some of the funnest parties and makes some of the best Halloween costumes ever. I don't know how people she knows can think she doesn't have enough fun.

I re-read this periodically as an antidote to the buy-buy-buy mentality that is all around me.

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Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence by Joe Dominguez and Vicki Robin

There are two sides to the coin of living beyond your means. The shiny side is that you can have everything you want right now. The tarnished side is that you will pay for it with your life.

This book is about achieving financial independence, which means you can afford not to work if you don't want to or can't. There is a whole program on how to do this, and only one part of it is frugality. This book is all about collecting and recording your personal finance data so that you can easily see where you are, where you're going, and even how long before you get there. For example, you're supposed to have on your refrigerator a graph showing your income each month, your expenditures each month, and how much income your investments can generate each month. When the expenditure line and the investment income line intersect, then you are financially independent.

There is also a lot of emphasis on the psychology as well as the numbers. The authors know that certain things may make you feel good or bad, and talk about ways to deal with that.

These guys also mention inflation. Most people want to tell you all about the magic of compound interest without ever mentioning the anti-magic of inflation. Not these guys; they have a whole chapter on it, and their take is not what you'd expect.

I actually haven't done all the steps yet, but they seem like a good idea. The one weak part of the book is the chapter on investment.

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Most advice on investment is annoying and one-sided. For example, the only good investment is your own business. Or real estate. Or (in the above book) US bonds. Even ordinary sources try to convince you that there are two kinds of investment: stocks and bonds. They'll go on and on about diversification (not putting all your eggs in one basket), and then they'll only tell you about two baskets (stocks AND bonds).

Um, no. There are many, many kinds of investments. For example, there's the Mormon three-years-of-nonperishable-food thing. That's an investment that will help you in tough financial times. If you're short on cash you can just not go grocery shopping until your next paycheck. Or for up to three years! If there's an emergency and everyone is running to the grocery store to stock up, you don't have to. If you're snowed in, you've got plenty of food. Unexpected company coming? I'm sure you can find something. I have never, ever, seen this investment discussed in any financial document. (I admit that I am also not a Mormon and never read Mormon stuff, but still, a good idea is a good idea. I also admit that I have seen a wimpy version of this described as, say, the pantry principle. I also admit that these investments do not increase in value, but then inflation does not erode their value either.) Who knows how many other fabulous investment ideas are absent from all discussions of investing?

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The Motley Fool You Have More Than You Think : The Foolish Guide To Personal Finance by David and Tom Gardner (I've read the 2001 edition.)

This is the least eye-rolly gag-a-metronic book on investing that I have read. I agree with almost everything they say. The Motley Fool website has gone strangely commercial, but this book (and parts of the site) are fine. There's a lot of common sense there. They talk about people with almost no money all the way up to people with millions. They admit that most strategies are good for some people and bad for some people. They even admit that personality is relevant--what you are comfortable with.

All the stocks they recommended have gone down since the edition I read was published. Heh! They have definite opinions, but they explain them and they explain why reasonable people might have other opinions. So there's some good food for thought here.

No words speak as eloquently and convincingly of the reason to invest in stocks as the performance of the Dow Jones industrial average over the course of its history, from 1896 to the present.

And it is that image--that little line that zigs more than it zags, soars more than it sags, proceeds almost unfailingly up the Mountain of Eternal Growth--that you should hold on to as you meditate on your first investments. Having completed the first part of the book, you're already well on your way to having put your house in order. Now it's time to step outside and begin cultivating your garden. Because it's not your house but your garden--here, the stock market--in which stuff will actually grow. And grow and grow.

Look again, if you will, at the Dow graph. Notice three things.

1. Notice the direction it goes.
2. Notice that it doesn't proceed in a straight line of perfectly algebraic slope.
3. Notice once again the direction it goes.

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White Banners by Lloyd C. Douglas

This is just an odd little fiction book, written in 1936, that I happen to be reading right now. (Indigo Rose, this must have been your mother's book.) It's about a character who comes into a family's life and introduces them to her philosophies on good decision making about finances and other personal matters.

"I wonder," doubted Marcia. "I see Wallie's cold is no better. I must telephone Doctor Bowen to come and look at him."

Hannah peeled Roberta's fluffy white dress off the ironing-board and patted it down smoothly in a fresh place.

"Didn't he ever have a cold before?" she asked casually.

"Dozens!" One right after another. Spring summer, fall, and winter. He has been known to have two or three at the same time."

"You always have the doctor?" inquired Hannah, amused.

"Of course! A cold is dangerous if you let it run on. You can't depend much on your wise old Mother Nature."

"What does the doctor prescribe?"

"Oh, he doesn't usually give Wallie any medicine; tells me to keep him warm and see that he has plenty of liquids."

"Well, can't we do that?" asked Hannah placidly. "Not much use hiring the doctor to come here and say it over again. That four dollars would go a long way toward a ton of coal, if we're to keep the child warm. We are about out, you know."

It was an odd thing, thought Marcia, what shocking impertinences this woman could commit without leaving you the slightest loophole for a suitable retort. And it was always done with a disarming smile that made it difficult for you to become indignant.

So the author hammers you over the head with his(?) idea of what common sense should be. And the sexism and classism is painful, too. But it covers the same kinds of finance issues in a book where you get to read fiction.

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Clutter's Last Stand: It's Time to De-Junk Your Life! by Don Aslett

Now this doesn't sound like a finance book but it does address one of the more common problems with the finances of Americans.

This is a rah-rah book to get you to get rid of your junk so that you house can be organized and you can find things when you need them. And when you see the kinds of things you have acquired that you should no longer have, you may become better at acquiring only appropriate things to begin with.

Like you, I hate to rent, I'd rather not borrow, I like to own--but don't be too proud to change. People buy $700 worth of ski stuff to ski once a year, or a 30-foot ladder to reach the eaves of the house once every four or five years. In either case they could rent the right equipment and not only save money but the lugging, storing, selecting, insuring, and general complication of their lives. Use should be the deciding factor--and not just will [you use it], but how often will you use it. And do you really like (or need) what it will do for you? Maybe you could just eliminate the activity or area it's "needed" for right out of your life.

The book gets extreme and silly. I love the title. But it gets tired and annoying after the first 1/2 to 2/3 of the book. But this is another one of those books you can re-read whenever you need an antidote to our culture's spending messages because you're forgetting why you don't want so much stuff.