7 Best Personal Finance Books to Read of All Time

Most Americans today are woefully lacking in financial literacy. A 2018 study by the FINRA Foundation found that only one in three Americans could correctly answer at least four out of five questions about simple financial concepts like compound interest and inflation. And our lack of knowledge is hurting us. In a 2019 survey by The National Financial Educators Council, 1,500 Americans said their poor financial fitness had cost them an average of $1,230 in the past year.

One way to improve your financial literacy is to read up on the subject. At your local library or bookstore, there are hundreds of books on all aspects of dealing with money, from basic budgeting to early retirement.

Best Personal Finance Books

Of course, there’s no way you could read every single personal finance book on the market. Fortunately, you don’t need to. Most books on a particular financial topic cover pretty much the same ground. There are several books on money that offer a broad, all-around primer on personal finance and money management. They’re the perfect way for financial newbies to learn the basics of earning, saving, investing, and developing smart money habits.

1. “The Richest Man in Babylon” by George S. Clason

In the 1920s, George S. Clason wrote a series of informational pamphlets for banks and insurance companies to hand out to their customers. But he didn’t simply lay out facts like a textbook. Clason illustrated financial principles through parables — specifically, short stories set in ancient Babylon. The stories were such a hit in 1926 that they were bound together and published as a book.

This classic text remains popular with 21st-century readers because it presents sound financial wisdom in a clear, compelling way. It emphasizes principles like living within your means, saving for retirement, and avoiding risky investments and get-rich-quick schemes.

Because this older book is no longer under copyright, you can read the full text for free online at the Internet Archive. But if you prefer a bound copy, you can buy it from Amazon or Bookshop.

2. “The Index Card” by Helaine Olen and Harold Pollack

If you want a more modern, straightforward approach to personal finance, check out “The Index Card: Why Personal Finance Doesn’t Have to Be Complicated.” It boils down the basics of money management to 10 simple rules short enough to fit on a 4-by-6-inch index card.

The idea grew out of a 2013 interview of Olen in which Pollack offhandedly commented that the best financial advice could fit on an index card. It prompted a flood of requests for such a card and eventually inspired the two to turn the idea into a book.

Pollack and Olen focus on common-sense rules, such as “strive to save 10 to 20% of your income” and “pay your credit card balance in full every month.” Each of these principles gets its own chapter. But they’re also laid out in a list you can copy onto an index card for easy reference. This book is an excellent choice for beginners and anyone who likes easily digestible advice that’s easy to remember.

3. “The Automatic Millionaire” by David Bach

Of David Bach’s 12 books on personal finance, 11 have been national bestsellers, and two — including “The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich” — have hit the No. 1 spot on The New York Times bestseller list. In this volume, he outlines a plan not to get rich fast but to get rich slowly and surely over your lifetime.

The key to Bach’s system is setting up an automatic investment plan through which you invest just a few dollars every single day. He explains how to redirect a few dollars per day into investments by looking for what he calls your personal “latte factor” — small regular expenses that add up. By “paying yourself first” and making your plan automatic, he argues, you can build wealth steadily, even if you don’t earn a high income.

4. “Women & Money” by Suze Orman

Numerous studies show that women handle money differently from men. Some of these differences are healthy. Women tend to be more cost-conscious shoppers, save more of our income, and be more cautious about debt.

However, women also have weak points where money is concerned. Women generally earn less and are more timid about investing in the stock market. Put that together with the fact that women often take time out of careers to raise children full-time, and it all adds up to lots of women lagging behind men on the road to financial freedom.

Financial guru Suze Orman wants to change that. In “Women & Money,” she talks frankly about how problems like fear and embarrassment can hold women of all ages back where money is concerned. Then she shows how to tackle these problems head-on and achieve your financial goals. From buying a car to investing for retirement, taking out student loans to making money decisions with a spouse, Orman covers everything women need to know about money but are too often afraid to ask.

5. “Broke Millennial” by Erin Lowry

When it comes to money, the millennial generation faces a different set of challenges than older folks. Compared to earlier generations, they’re burdened with higher student loan debt, lower incomes, and less job stability. As a result, many millenials struggle to build a secure financial foundation.

In “Broke Millennial: Stop Scraping By and Get Your Financial Life Together,” financial expert Erin Lowry offers advice specifically for Generation Y. Lowry goes beyond the basics of budgeting and investing to explore the psychological side of money. She helps readers understand their relationship with money and how it can help or hurt them. She discusses ways to handle tricky situations such as splitting a check with a group of friends and talks about how to get “financially naked” with a partner and talk honestly together about money.

To appeal to the younger set, Lowry peppers the text with amusing stories and hashtags like #GYFLT — get your financial life together. She also gives the chapters whimsical titles, including “Is Money a Tinder Date or Marriage Material?” and “Paying Rent to your ’Rents.” Yet wrapped in the humor is vital information about paying off debt, buying a home, and saving for retirement. In a New York magazine roundup of personal finance books, financial expert Farnoosh Torabi says Lowry’s book perfectly “captures the financial zeitgeist of this generation.”

6. “You Are a Badass at Making Money” by Jen Sincero

Most financial guides tackle the nuts and bolts of handling money, like saving for retirement or paying off credit card debt. Jen Sincero’s “You Are a Badass at Making Money: Master the Mindset of Wealth” takes a different approach. She focuses on the ability to make money as largely a matter of attitude. With cheeky humor, she explains how to break the mental habits that can hold you back and helps you learn to recognize and seize opportunities.

A Business Insider review of this book concedes that it’s a bit short on “actionable financial advice.” You won’t find concrete tips here on starting a business, building an emergency fund, or choosing a financial advisor. What this book offers instead is a good, solid kick in the pants. If there’s something you’ve always wanted to do — change careers, start a business, travel the world — but doubt and fear have held you back, this is the book you need.

7. “I Will Teach You To Be Rich” by Ramit Sethi

When you see a book called “I Will Teach You To Be Rich,” you might expect it to contain some kind of get-rich-quick scheme that promises — but can’t deliver — big bucks with minimal effort. Fortunately, Ramit Sethi’s classic work is more than that. Instead, it provides a crash course in handling your money and building wealth.

“I Will Teach You To Be Rich” covers every aspect of your financial life. In 13 chapters, Sethi explains how to:

What reviewers love about Sethi’s program is the way it takes the effort out of money management. He breaks down financial planning into simple steps that are easy to put into action. His style can come across as harsh at times, with stinging criticism of “crybabies” and “victim culture.” But the message behind it — that your financial future is in your hands — is valuable and empowering.

Final Word

The books on this list provide a solid grounding in the basics. However, there’s lots more to explore beyond that. Once you understand the essentials, you can seek out other books to help you dive into the details of specific topics. There are books to help you get out of debt, books on investing, books on home buying, and books on how to achieve financial independence.

As you search for new finance books, examine them carefully to ensure they’re useful and reliable sources. Look at the authors’ histories and credentials to see what makes them qualified to advise others on financial matters. Are they finance professionals, journalists, or people writing from personal experience? Learning about the authors helps you avoid falling for bogus investment advice and get-rich-quick schemes that have no real results to back them up.

Also, because one of the keys to gaining wealth is to keep a lid on your spending, it makes sense to pick up the books you want as cheaply as possible. Along with your local library, check out secondhand bookstores, online sellers, and book swaps to save money on books.

Source: moneycrashers.com

Have You Met Mr. Market?

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Do you know the allegory of Mr. Market? This useful parable—created by Warren Buffett’s mentor—might change everything you think about the stock market, its daily prices, and the endless news cycle (and blogs?!) built upon it.

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The Original Mr. Market

The imaginary investor named “Mr. Market” was created by Benjamin Graham in his 1949 book The Intelligent Investor. Graham, if you’re not familiar, was the guy who taught Warren Buffett about securities analysis and value investing. Not a bad track record.

Graham asks the readers of his book to imagine that they have a business partner: a man named Mr. Market. On some days, Mr. Market arrives at work full of enthusiasm. Business is good and Mr. Market is wildly happy. So happy, in fact, that he wants to buy the reader’s share of the business.

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But on other days, Mr. Market is incredibly depressed. The business has hit a bump in the road. Mr. Market will do anything to sell his own shares of the business to the reader.

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Of course, the reader is always free to decline Mr. Market’s offers. And the reader certainly should feel wary of Mr. Market. After all, he is irrational, emotional, and moody. It seems he does not have good business judgement. Graham describes him as having, “incurable emotional problems.”

How can Mr. Market’s feelings fluctuate so quickly? Rather than taking an even emotional approach to business highs and lows, Mr. Market reacts strongly to the slightest bit of news.

If anything, the reader could probably find a way to take advantage of Mr. Market’s over-reactions. The reader could buy from Mr. Market when he’s feeling overly pessimistic and sell to Mr. Market when he’s feeling unjustifiably euphoric. This is one of the basic principles behind value investing.

But Mr. Market is a metaphor

Of course, Mr. Market is an imaginary investor. Yet countless readers have felt that Mr. Market acts as a perfect metaphor for the market fluctuations in the real stock market.

The stock market will come to you with a different price every day. The market will hear good news from a business and countless investors will look to buy that business’s stock. Will you sell to them? But a negative headline will send the market tumbling. Investors will sell. Please, they plead, will you buy my shares?!

Don’t like today’s price? You’ll get a new one tomorrow.

Is this any way to make rational money decisions? By buying while manic and selling while depressive? Do these daily market fluctuations relate to the true intrinsic value of the businesses they represent?

“Never buy something from someone who is out of breath”

Burton Malkiel

There’s a reason why Benjamin Graham built Mr. Market to resemble an actual manic-depressive. It’s an unfortunate affliction. And sadly, those afflicted are often untethered from reality.

The stock market is nothing more than a collection of individuals. These individuals can fall prey to the same emotional overreactions as any other human. Mr. Market acts as a representation of those people.

“In the short run, the stock market is a voting machine. Yet, in the long run, it is a weighing machine.”

Benjamin Graham

Votes are opinions, and opinions can be wrong. That’s why the market’s daily price fluctuations should not affect your long-term investing decisions. But weight is based on fact, and facts don’t lie. Over the long run, the true weight (or value) of a company will make itself apparent.

Warren Buffett’s Thoughts

Warren Buffett is on the record speaking to Berkshire Hathaway shareholders saying that Mr. Market is his favorite part of Benjamin Graham’s book.

Why? Because:

If you cannot control your emotions, you cannot control your money.

Warren Buffett

Of course, Buffett is famous for skills beyond his emotional control. I mean, the guy is 90 years old and continues his daily habits of eating McDonalds and reading six hours of business briefings. That’s fame-worthy.

Warren Buffett

But Buffett’s point is that ignoring Mr. Market is 1) difficult but 2) vitally important. Your mental behavior is just as important as your investing choices.

For example: perhaps your business instincts suggested that Amazon was a great purchase in 1999—at about $100 per share. It was assuredly overvalued at that point based on intrinsic value, but your crystal ball saw a beautiful future.

But Buffett’s real question for you would be: did you sell Amazon when the Dot Com bubble burst (and the stock fell to less than $10 per share)? Did Mr. Market’s depression affect you? Or did your belief in the company’s long-term future allow to hold on until today—when the stock sits at over $3000 per share.

The Woefully Ignorant Sports Fan

I know about 25 different versions of this guy, so I bet you know at least one of them. I’m talking about the Woefully Ignorant Sports Fan, or WISF for short.

The WISF is a spitting image of Mr. Market.

When Lebron James has a couple bad games, the WISF confidently exclaims,

“The dude is a trash basketball player. He’s been overhyped since Day 1. I’m surprised he’s still in the starting lineup.”

Skip Bayless: ESPN's different rules for me and Stephen Smith
Stephen A. Smith and Skip Bayless: Two Gods of the WISF world

Wow! That’s a pretty outrageous claim. But when Lebron wins the NBA finals and takes home another First-Team All-NBA award, the WISF changes his tune.

“I’m telling you, that’s why he’s the Greatest of All Time. The GOAT. Love him or hate him, you can’t deny he’s the King.”

To the outside observer, this kind of flip-flop removes any shred of the WISF’s credibility. And yet the WISF flip-flops constantly, consistently, and without a hint of irony. It’s simply his nature.

Now think about the WISF alongside Mr. Market. What does the WISF actually tell us about Lebron? Very little! And what does Mr. Market tell us about the true value of the companies on the stock market? Again, very little!

We should not seek truth in the loud pronouncements of an emotional judge. This is another aphorism from The Intelligent Investor book.

But I Want More Money!

Just out of curiosity, I logged into my Fidelity account in late March 2020. The COVID market was at the bottom of its tumble, and my 401(k) and Roth IRA both showed scarring.

Ouch. Tens of thousands of dollars disappeared. Years of saving and investing…poof. This is how investors lose heart. Should I sell now and save myself further losses?

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No! Absolutely not! Selling at the bottom is what Mr. Market does. It’s emotional behavior. It’s not based on rationality, not on the intrinsic values of the underlying businesses.

My pessimism quickly subsided. In fact, I began to feel silver linings. Why?

I’m still in the buying phase of my investing career. I buy via my 401(k) account every two weeks. And I buy via my Roth IRA account every month. I’ve never sold a stock. The red ticks in the image below show my two-week purchasing schedule so far in 2020.

If you’re investing for later in life, then your emotions should typically be the opposite of the market’s emotions. If the market is sad and prices are low and they want to sell…well, great! A low price for you increases your ability to profit later.

And Benjamin Graham agrees. He doesn’t think you should ignore Mr. Market altogether, but instead should do business with him only when it’s in your best interest (ooh yeah!).

“The intelligent investor shouldn’t ignore Mr. Market entirely. Instead, you should do business with him, but only to the extent that it serves your interest.”

Benjamin Graham

If you log into your investment accounts and see that your portfolio value is down, take a step back and consider what it really means. You haven’t lost any money. You don’t lock in any losses unless you sell.

The only two prices that ever matter are the price when you buy and the price when you sell.

Mr. Market in the News

If you pay close attention to the financial news, you’ll realize that it’s a mouthpiece for the emotional whims of Mr. Market. Does that include blogs, too? In some cases, absolutely. But I try to keep the Best Interest out of that fray.

For example, here are two headlines from September 29, 2020:

Just imagine if these two headlines existed in another space. “Bananas—A Healthy Snack That Prevents You From Ever Dying” vs. “Bananas—A Toxic Demon Food That Will Kill Your Family.”

The juxtaposition of these two headlines reminds me of Jason Zweig’s quote:

“The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap).”

Jason Zweig

More often than not, reality sits somewhere between unsustainable optimism and unjustified pessimism. As an investor, your most important job is to not be duped by this emotional rollercoaster.

Investing Based on Recent Performance

Out of all the questions you send me (and please keep sending them!), one of the most common is:

“Jesse – I’m deciding between investment A, investment B, and investment C. I did some research, and B has the best returns over the past three years. So I should pick B, right?”

Wonderful Readers

Great question! I’ve got a few different answers.

What is Mr. Market saying?

Let’s look at the FANG+ index. The index contains Twitter, Tesla, Apple, Facebook, Google, Netflix, Amazon, NVIDIA, and the Chinese companies Baidu and Alibaba. Wow! What an assortment of popular and well-known companies!

The recent price trend of FANG+ certainly represents that these companies are strong. The index has doubled over the past year.

Mr. Market is euphoric!

And what do we think when Mr. Market is euphoric?

How do you make money?

Another one of my favorite quotes from The Intelligent Investor is this:

“Obvious prospects for physical growth in a business do not translate into obvious profits for investors”

Benjamin Graham

You make money when a company’s stock price is undervalued compared to its prospects for physical growth. You buy low (because it’s undervalued), the company grows, the stock price increases, you sell, and boom—you’ve made a profit.

I think most people would agree that the FANG+ companies all share prospects for physical growth. But, are those companies undervalued? Alternatively, have their potentials for future growth already been accounted for in their prices?

It’s just like someone saying, “I want a Ferrari! It’s such a famous car. How could it not be a great purchase?”

The statement is incomplete. How much are you paying for the Ferrari? Is it undervalued, only selling for $10,000? Or is it overvalued, selling at $10 million? The product itself—whether a car or a company—must be judged against the price it is selling for.

Past Results Do Not Guarantee Future Performance

If investing were as simple as, “History always repeats itself,” then writing articles like this wouldn’t be worthwhile. Every investment company in the world includes a disclaimer: “Past results do not guarantee future performance.”

Before making a specific choice like “Investment B,” one should understanding the ideas of results-oriented thinking and random walks.

Farewell, Mr. Market

Mr. Market, like the real stock market, is an emotional reactionary. His daily pronouncements are often untethered from reality. Don’t let him affect you.

Instead, realize that only two of Mr. Market’s thoughts ever matter—when you buy from him and when you sell to him. Do business with him, but make sure it’s in your best interest (oh yeah!). Everything else is just noise.

If the thoughts of Benjamin Graham, Warren Buffett, and the Best Interest haven’t convinced you, just look at the financial news or consider the Woefully Ignorant Sports Fan. Rapidly changing opinions rarely reflect true reality.

Stay rational and happy investing!

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Source: bestinterest.blog