Many people spend more time planning their vacation than their financial future. This is why too many end up working so hard for so long and ending up with so little. Self control, financial education, saving, business building, investing, and trading are paths to building net worth. Financial freedom comes from building your own business or acquiring cash flowing assets that create an income greater than your monthly living expenses. We earn money from creating value for customers, a company, our ourselves, through using our education, training, or experience. Our net worth is the difference between the products we consume and the value we create for businesses. Our financial freedom is determined by how much time our net worth gives us between our job and ability to not work. Financial freedom is obtained when monthly cash flow from assets is greater than monthly bills.
Here are 10 of the best personal financial books of all time in my experience.
The Richest Man In Babylon is a great little personal finance book set as an ancient fictional tale that explains the ‘The Seven Cures to a Lean Purse’ and ‘The Five Rules of Gold’.
The Seven Cures to a Lean Purse:
- Start thy purse to fattening. Pay yourself first. Save money before you pay any bills.
- Control thy expenditures. Don’t spend every penny you make or you will be broke no matter how high your income becomes.
- Make thy gold multiply. Invest capital in assets that go up in value.
- Guard thy treasures from loss. Your number one priority is to keep your investment capital safe from loss.
- Make of thy dwelling a profitable investment. Buy a home in the right location as a hedge against inflation and to create equity and ownership over the long term.
- Insure a future income. Convert your earned income into assets that can create future case flow.
- Increase thy ability to earn. Grow your earning power through education, building skills, gaining experience in a field, or promotions to higher levels of responsibility.
The Five Laws of Gold:
- Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family. Save 10% of your income each time you are paid and convert it to investment capital.
- Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field. Invest your capital for growth and compounding.
- Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling. Find a successful model or system to copy for investing your money.
- Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep. Never put money in something you don’t fully understand.
- Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment. This fastest way to go broke is to try to get rich quick.
Rich Dad, Poor Dad: Robert Kiyosaki taught me that the employee quadrant was not the only way. There are also the self-employed, business owner, and investor quadrants that people can operate in. Cash flow from assets are a better way to create an income than selling yourself to an employer.
Rich Dad, Poor Dad is one of the best selling personal finance books of all time for its ability to teach the secrets of wealth building through an interesting narrative read. The book tells the story of the financial lessons a young Kiyosaki learned growing up with the contrast between his own dad who was an employee and the father of his best friend who was a business owner. The lessons contained in this book can be aha moments or eureka moments for those readers never exposed to higher financial thoughts.
This book does a great job filling the gap for young people that never received a proper financial education in school or from their parents. Most people learn only two financial lessons in their early years, got to college and get a good job. The author does a great job showing that this is not the best path for financial success, financial independence, or wealth building. Readers must understand cash flowing assets, business building, and the power of asset ownership if they ever want to escape the rat race.
Here is a summary of ten key lessons from the book:
- Schools train students to be employees not entrepreneurs or investors.
- Working to learn new skills is more important than working to earn a paycheck.
- Assets pay you to own them, debts cost you to own.
- Pay yourself first before you pay your bills.
- A financial business plan is more important than a resume.
- The poor and middle class look for a job, the wealthy create jobs.
- Being broke is temporary for someone with entrepreneurial skills while a poor mindset can be permanent.
- Your financial IQ is your courage, creativity, and financial knowledge that creates skills, assets, and wealth.
- The middle class focuses on school, specialization, job security and retiring with benefits which is not as safe a path as they believe.
- The primary lesson of the book is to learn how make money work for you instead of selling your time for money in a never ending rat race.
Financial Peace: Dave Ramsey taught me to break free from the burdens of consumer debt and living beyond my means. 15 year mortgages can save you six figures in interest, new cars cost you thousands of dollars as you drive them off the lot, and credit cards can be a prison without self control. Staying out of debt is a path to freedom, regardless of your economic status.
BABY STEP 1: Save $1,000 for your starter emergency fund.
BABY STEP 2: Pay off all debt (except the house) using the debt snowball.
BABY STEP 3: Save 3–6 months of expenses in a fully funded emergency fund.
BABY STEP 4: Invest 15% of your household income in retirement.
BABY STEP 5: Save for your children’s college fund.
BABY STEP 6: Pay off your home early.
BABY STEP 7: Build wealth and give.
Your Money or Your Life: This book explains that there is no “Job Charming”. The best plan is to free ourselves from the need of a job by having assets that pay our bills, without having to sell our time to someone that will profit from it more than we will. The core teaching of this book is focusing on tracking your cash flowing investments versus your living expenses with the goal to grow your assets until they pay your bills and free you from needing a job. It is about buying your life back from your employee.
The Millionaire Next Door: In 1996, two professors studied a sample of millionaires in the United States to understand the path that took them to a million dollar net worth. The results were very surprising as their path and lifestyle was very unexpected. They did not find millionaires who inherited their wealth but earned it their self.
They weren’t living in huge houses or driving luxury cars. Most were self made millionaires through a combination of owning a business, investing consistently, and living within their means. This book showed for the first time that most of the high paid educated professionals had a high income and lived a rich lifestyle but many times had a low net worth. I read this when it was originally published and it was shocking to learn. Most the real millionaires were living a middle class lifestyle, that is why they had money, they didn’t spend it all on their lifestyle.
This book shatters the perception that people with nice houses and new cars are rich. The vast majority of the Jones’s that so many people try to keep up with are high income earners than live paycheck to paycheck, and spend every penny they make on their lifestyle. Many maximize debt to look successful. The undercover millionaires are many times the methodical middle class that dedicate themselves to building businesses and growing capital not showing off with consumer debt. They are successful due to their self control in spending and work ethic in growing their income.
The formula for becoming a millionaire is: Build a business + Invest wisely + Live within your means = Million dollar net worth.
Here is what that study found that worked for the millionaires they surveyed:
- Income is not the same as wealth. The income you save and invest is what creates wealth.
- The majority of millionaires have self control over their spending. They have either written budgets or simply spend less than they earn naturally.
- Millionaires tend to track their spending very closely and play great financial defense.
- Millionaires tended to have goals for their career, business, and finances. They decided what they wanted to accomplish and made decisions through that filter.
- The millionaires on average spent approximately twice as much time on financial planning than lower net worth individuals. They put in the time on business, investing, and budgeting to create success in those areas.
- Millionaires generally live in modest homes that are usually less than three times their annual income. This enables them to invest money in stocks or their own business since they are not burdened by a huge mortgage payment each month.
- Most of the millionaires were married to the same person their whole life. Their spouse also shared their financial goals and were also frugal and intelligent with their spending habits.
- A third of the millionaires surveyed owned used cars. They drove affordable cars and avoided having large car payments. Large monthly car payments can destroy your ability to build wealth.
- Millionaires were happy with their lifestyle, financial peace, and freedom of choices. They did not feel deprived they felt empowered.
- The key to their path to one million dollars in net worth was minimizing their bills and debt and maximizing their investing.
“Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by 10. This, less any inherited wealth, is what your net worth should be.” – The Millionaire Next Door
Millionaire Fast Lane: This book is unique as it is written by an entrepreneur that used its principles to become a millionaire after years of frustration and trial and error, then wrote a book about it. It is a diverse look at all the paths to millionaire along with the roadblocks and explains what the author believes is the fast lane.
The author believes there are four ingredients that make up the winning formula to millionaire:
- Your internal financial roadmap makes up your financial belief system and mental model. It is your convictions about wealth and money that can determine your destiny. Be careful what you believe.
- You are your own financial vehicle. No one can drive the journey for you, . Your vehicle is a complex system needing frequent fueling, tune ups, and regular maintenance to ensure it keeps working on your journey.
- Your roads are the financial highways you travel. The possible paths are endless for the same destination. Choose the one that best fits your own circumstances.
- You speed is momentum of execution and your ability to implement an idea into reality.
The three financial roads:
The Sidewalk: The sidewalker lives on the financial edge just a few steps from being homeless, bankrupt, or back to living in their parents’ house. Sidewalkers are trapped in a hand to mouth lifestyle with an urgent and insatiable need for self-gratification. They can be at different income levels but they are trapped on a financial hedonic treadmill spending every penny they make on consumer goods. The spend all their present and future money to live today.
The Slowlane involves sacrificing spending today by saving and investing for tomorrow. People in the slowlane have been sold a series of doctrines that ask you to make a trade-off, your present for your future. The trade-offs include getting a job, working with a focus on enjoying retirement, and saving at least 10% of your paycheck and staying out of debt. While the Slowlane is a convenient exit from the sidewalk and creates responsible personal finances it takes sacrifice and time to become a millionaire. The Slowlane offers virtually guaranteed riches at retirement age when you can enjoy the fruits of labor with retirement.
The Fastlane: A business lifestyle that uses controllable unlimited leverage (CUL) to create the optimal environment for rapid wealth creation and the lifestyle you desire
The Fastlane is a business system to achieve financial freedom while the Slowlane is a job where you sell your time to a business. In the Fastlane your wealth is created by a successful business model.
The Fastlane wealth equation is:
Wealth = Net Profit + Asset Value
Asset Value = (Net Profit) X (Industry Multiplier)
“The Fastlane Roadmap is engineered for two purposes. It’s engineered to create a passive income stream to the excess of your expenses and lifestyle desires, and to make financial freedom a reality, exclusive of age.”
This book has an interesting angle versus other personal finance books.
The author believes that there has been customer brainwashing used by financial planners, wealth managers, and mutual funds that benefit the institutions by turning their customers into their own cash flowing assets. He debunks popular investment myths that are accepted blindly as the truth and offers a new look at the value of 401ks and the false belief that it takes high risk to achieve high returns.
The book contains many interesting anecdotes and historical facts. He explains in detail the primary psychological beliefs that hurt personal financial success which is the scarcity mindset where jobs, business, and customers are a zero-sum game in the economy. A growth-mindset is the path to wealth as it opens your mind to possibilities and win-win relationships. The book doubles as both a self-help guide and a personal finance book. He believes that readers must first embrace a mindset of self-reliance and find their own Soul Purpose. He advises that the key to personal finance and prosperity starts with the right mindset as this is where value and wealth begins before it is created in the real world. This book is great for looking at personal finance from all angles as he attacks traditional financial one-size-fits-all solutions from new fresh mind expanding angles.
Think and Grow Rich is the best selling self help book of all time with over 100 million sales. Napoleon Hill was the original self help guru with a focus on the psychology of financial success. Mr. Hill studied and interviewed some of the most successful people of his time before publishing the first edition of his book in 1937. Financial success starts first with the right mindset and requires a continual management of your thoughts, emotions, and beliefs on the journey to wealth. This book laid the foundation for developing the psychology to empower its readers to connect the dots from where they are now to where they want to be in the future.
Here is my Think and Grow Rich summary based on the ten best quotes from the book.
“The starting point of all achievement is DESIRE. Keep this constantly in mind. Weak desire brings weak results, just as a small fire makes a small amount of heat.” – Napoleon Hill
Desire is the motivation that energizes you and fuels the work needed to accomplish your goals.
“You are the master of your destiny. You can influence, direct and control your own environment. You can make your life what you want it to be.” – Napoleon Hill
Your decisions today determine your future not your past. You can choose where to live, how you want to make a living, and who your friends will be.
“When defeat comes, accept it as a signal that your plans are not sound, rebuild those plans, and set sail once more toward your coveted goal.” – Napoleon Hill
Every loss carries a lesson, accept the new information and adjust your path. The journey to success is not a direct one but you have to keep moving toward your goals.
“More than five hundred of the most successful men this country has ever known told the author their greatest success came just one step beyond the point at which defeat had overtaken them.” – Napoleon Hill
Many of the most successful people in history also had the biggest failures. Failure is the cost and risk of trying to achieve great things. Many times it takes several attempts to win the biggest prizes.
“Set your mind on a definite goal and observe how quickly the world stands aside to let you pass.” – Napoleon Hill
One of the most important things you can ever do is write down your goals. It is amazing the paths your subconscious finds when it is looking for ways to accomplish what you want.
“The way of success is the way of continuous pursuit of knowledge.” – Napoleon Hill
Knowledge is an edge, learning how to achieve your goals is half the battle that you must win.
“Happiness is found in doing, not merely possessing.” – Napoleon Hill
You must enjoy your journey to your goals because if you don’t you are likely to quit. Doing what you love to do can be an edge.
“A quitter never wins-and-a winner never quits.” – Napoleon Hill
Winners don’t quit when they are tired or after set backs, they don’t stop even after they win. Perseverance is an edge over all the quitters.
“Every adversity, every failure, every heartbreak, carries with it the seed of an equal or greater benefit.” – Napoleon Hill
Everything can work together for your good if you are flexible and open-minded on how and when you will achieve your goals.
“More gold had been mined from the mind of men than the earth it self” – Napoleon Hill
Wealth is primarily created from the ideas, inventions, technologies, and businesses that emerge from an entrepreneurs mind. The power to create wealth is primarily in monetizing good ideas into reality.
While the right mindset alone is not enough to enable you to achieve all your goals it is a necessary first step. Other steps that are required like research, study, hard work, working smart, people skills, and perseverance. All the general principles of the psychology of financial success are found in this book. A must read for anyone serious about opening their mind to the possibilities that life can hold.
Secrets of the Millionaire Mind: author T. Harv Eker shows readers the big difference between how millionaires think versus people with a poor mindset. Wealth starts in the mind, regardless of your circumstances your financial future will be more in line with your thoughts and actions. Many people start from humble beginnings to go on to create wealth while many rich children lose their inheritance by the third generation. While a rich mindset doesn’t guarantee wealth, a poor mindset almost guarantees staying where you started in life. This book gives readers the psychology piece of the wealth puzzle, the next steps are adding financial education and doing the work needed systematically until success is achieved. The author creates a contrasting psychological mirror we can all look into.
What the chapters of the book are about:
1: Rich people believe “I create my life”. Poor people believe “Life happens to me”.
2: Rich people play the money game to win. Poor people play the money game to not lose.
3: Rich people are committed to being rich. Poor people want to be rich.
4: Rich people think big. Poor people think small.
5: Rich people focus on opportunities. Poor people focus on obstacles.
6: Rich people admire other rich & successful people. Poor people resent rich & successful people.
7: Rich people associate with positive, successful people. Poor people associate with negative or unsuccessful people.
8: Rich people are willing to promote themselves and their value. Poor people think negatively about selling and promotion.
9: Rich people are bigger than their problems. Poor people are smaller than their problems.
10: Rich people are excellent receivers. Poor people are poor receivers.
11: Rich people choose to get paid based on results. Poor people choose to get paid based on time.
12: Rich people think “both”. Poor people think “either/ or.”
13: Rich people focus on their net worth. Poor people focus on their working income.
14: Rich people manage their money well. Poor people mismanage their money well.
15: Rich people have their money work hard for them. Poor people work hard for their money.
16: Rich people act in spite of fear. Poor people let fear stop them.
17: Rich people constantly learn and grow. Poor people think they already know.
Trend Following: Michael Covel taught me the power of trends in capital flow, and to follow the path of least resistance with my trading and investing capital. Reacting to what is happening instead of predicting, or having opinions about what will happen, is the easiest path to building capital in the financial markets. This book is a must read for both traders and investors as a substitute for buy and hold investing as the dangers of holding through a real stock market crash are all but ignored now after so many years of government and Federal Reserve holding up and bailing out investors in equities. Following the trend can help you avoid a decade of gains being wiped out in the stock market when the next lost decade of returns happen to investors. It can also help you understand the principles for participating in new asset classes by following the trend not opinions or predictions.
You can also check out the personal finance book I wrote after reading all the above books: The Working Dead.