There are thousands of books on personal finance, investing, debt management, and everything else there is to know about money. You would have to become a full-time reader in order to get through even half of it in your lifetime. The good news is that you don’t have to do that to be financially successful. Not even close.

I want this book to make it clear that in order to be in control of your money, you just have to get the fundamentals down pat. And forget what you think you know about the fundamentals, or even what those fundamentals are. Let’s start with a tabula rasa, a blank slate, and go from there.

Here are the five simple rules for personal financial success:

1. Disaster-proof your life.

2. Spend less than you earn.

3. Aggressively pay down high-interest debt.

4. Read the fine print.

5. Delay consumption.

I guarantee that if you can follow these five rules, you’ll be better off than most people.

Cue the whimpering party favour that sounds like a dying duck. Yep! On practically the first page I’ve given you all you need to know about the fundamentals of being financially successful. Maybe it seems like a letdown. Maybe you were expecting some secret, magic-bullet solution to all your financial problems and questions. That doesn’t exist. The truth is, you’ve either been over-thinking your money, or you haven’t been thinking about it at all. And it’s time for that to stop.

Consider the goal of leading a healthier life. We know that if we eat better and work out regularly, we’ll be in better shape. We also know that people who use personal trainers often get fantastic results. But it’s not because the personal trainer shows you a fancy new way to do a sit-up; the trainer just makes you do the sit-up. When you make an appointment to meet your trainer at the gym, you’re more likely to show up than if you were going to work out by yourself. And he or she kicks your butt when you get there. If you can do 10 push-ups without breaking a sweat, that’s not a workout, that’s a warm-up. Your trainer won’t let you stop until you’re sweating, and you know that because of that discipline, you are going to see results.

But I have good news.

Getting physically fit is much harder than getting financially fit. Physically, you have to bust your ass forever to see continual improvement. Very few people have the commitment to do that. Financially, you need that kind of discipline for only a short time, because once you get started down the right path, it gets easier. You’ll get to a point where you have more money left over at the end of the month, and then you can put it away to grow in a savings account or investment portfolio. All things being equal, your income is rising as well, so you can ease off on the discipline. Eventually, you’ll get to a point where your financial situation improves without your having to make a huge effort. It’s as if your financial muscles are growing bigger and bigger and you’re not even going to the gym anymore.

That’s it. That might sound ridiculously simple, but it works.

Many people are convinced that they need to get everything figured out before they can start overhauling their finances. They think they need a perfect plan. But making a perfect plan is so daunting a task that they never make a start. The difference between a good plan and a perfect plan is like the difference between an A and an A+. Considering most people are somewhere near a C–, an easy A seems like a much better goal than a hard-to-get A+. This book is going to show you how to get that easy A. If you want that A+, then, as I’ve already said, there are thousands of books out there from which to start your long campaign.

When I was a financial advisor, I met people with different “money personalities.” The people who had lots of money blew me away with how poorly they understood the complexities of investments (which are not as important as most people think). Meanwhile, the people who could rattle off the price of gold, or give me the price history of BlackBerry’s stock for the last five years generally were not the ones with loads of cash. In the beginning, building up lots of money depends more on putting money away than making money grow because of smart investing decisions. Put $200 per month into a high-interest savings account that pays a measly 1.5% and you’ll have almost $26,000 after 10 years. Invest only $100 per month and to get a comparable outcome, just shy of $26,000, you’ll need an annualized return of more than 14% per year on your portfolio. (The long-term return for stock market investments is about 6–8%, so, in other words, that result is extremely unlikely.) Anything that has the potential to earn that much also has a very high chance of losing a lot, too. We’ll go over the basics of risk and return later, because a little risk is okay for some people, but the point is that how much you save is far more important than trying to beat the market. You’ll also note that you can control one of these options (how much you save), but you have almost no control over the other (market performance).

Think about that: when you are starting out, how much you save is far more important that trying to outperform the market.

Saving is simple. You either do it or you don’t. You don’t need to read a textbook that tells you what saving money is: it’s just putting money away. Investing, on the other hand, is infinitely more complex. Professional investors who manage billions of dollars are always assimilating new information. And they already know a lot. They’ve already spent hundreds or thousands of hours studying to get licensed, and even after that, they study more. They’re immersed in the business: it’s what they do for a living. And most don’t beat the market.

This is a perfect example of the way most people complicate money unnecessarily. And it explains why my most successful clients were the ones who just did the simple things well. You don’t have to understand what the talking heads are saying on the business news to be financially successful. You just have to get the basics right.

I’ve just used saving and investing as my first example of over-thinking. I chose this topic partly because it’s sexier than life insurance (well, the investing part, that is). People who consider themselves to be well-informed about money are generally the ones who watch the business news, read the business section of the newspaper, and follow a few financial blogs. All three of those media put little emphasis on financial planning and lots of emphasis on investing. It has been burned into our heads that investing prowess is equated with good money management.

I call bullshit.

The truth is that investing is pretty close to the last thing you need to worry about. Some of you may have noticed that when I listed the five rules for financial success, investing wasn’t even mentioned. That was no mistake.

Rule number one is to disaster-proof your life. This is simply because you may be hit by a bus tomorrow. Or lose your job. Or discover a mole that turns out to be cancer. Your personal financial situation could be completely upended in a flash. The risks are even greater when you are younger because you haven’t had time to build up assets you can liquidate.

Planning for retirement is a multi-decade endeavour. You have time to figure that out. However, you don’t have all the time in the world to figure out your insurance. As a former colleague of mine used to say, “If you know the day you are going to die, give me a call, and I’ll pop over the night before and set up your insurance policy.” The absurdity of that proposition is clear. Ditto for disability insurance, in case you don’t lose your life, but instead lose the ability to work for a living. According to insurance company Great-West Life, one in three people become disabled for 90 days or more before age 65, and of those people, their average length of disability is 2.9 years. If you found out today that you wouldn’t have income from employment for three years, how long could you last financially?

The next two rules—spend less than you earn and aggressively pay down high-interest debt—are related. Debt is built up because you spend money you don’t have (yet). Anyone who has built up significant debt knows that it handcuffs you. Many people reach a state of equilibrium in which they make the odd lump-sum payment against their credit card balances and yet never quite pay it off. They feel as though they never get ahead. They make hundreds, even thousands of dollars of payments that could be used towards so many other things: savings, retirement, vacations, emergency funds—you name it.

The fourth rule is to read the fine print. Most people are guilty of not even reading the large print, but the small type is where you generally find the clauses that come back to bite you later. I know a lot of people skip it, either because they don’t want to take up a salesperson’s time, or because there is too much to read, and those are silly reasons. Never sign anything at your front door the first time you meet someone, and never sign anything you don’t understand. Pay special attention to what happens when you want to cancel or back out of a contract.

The fifth rule—delay consumption—is probably the hardest to implement in the beginning, but it becomes self-reinforcing over time. We’ve all sometimes been tempted to “keep up with the Joneses,” as the saying goes, but we shouldn’t, because they’re headed for a cliff.

If you’ve ever gone to a big-box electronics store and admired the rows of high-definition televisions on display, then you have seen a perfect example of the Jones phenomenon in action. When you see two TVs of the same size side by side, but at vastly different prices, the one with the higher price may look sharper, be slightly thinner, have better contrast or more vivid colour. There is a tendency to gravitate to the higherpriced model because, when looked at that way, the difference between it and the cheaper, less expensive model can be very noticeable. But if you take the cheaper model home, where there is no other TV beside it to compare it with, you won’t notice a thing that gets in the way of enjoying your TV shows and movies. When we compare, we compete. And our survival-of-the-fittest mentality means we try to win.

But delayed consumption is about more than just TVs. The big-ticket items, such as houses and cars, are where we can really draw the line between needs and wants, and between financial success and financial strife.

So that’s it. Five simple rules. So far, I haven’t thrown out any acronyms, formulas, complex calculations, or strategies. Nor have I said you need to cut out your daily takeout coffee or any of your other minor vices. It’s possible to be financially prudent and still have fun. If you can run a surplus, and put that surplus to good use, drink all the lattes you want. What would be the point of trying to amass any kind of wealth if not to spend it eventually? And how likely is someone to stick to a plan if it’s so difficult that it’s impossible to stay motivated? (Having said that, some people might choose to give up takeout coffees because they would rather spend some money on other vices. Not everyone likes caffeine as much as I do.)

What follows is a blueprint showing how you can score an easy A with your personal finances. As I said before, if you want that hard-to-get A+, by no means should you stop at reading only this book. I’ll cover the basics of how to invest prudently, but I won’t drill down on whether you would be better off using index mutual funds versus exchange-traded index funds after factoring in the commissions versus management expense ratios at various portfolio sizes. That would be like talking about how a race-car driver can use both feet to operate all three pedals simultaneously when you don’t even know how to drive stick or what a clutch is. That’s an A+ discussion. It’s certainly worth exploring, but not until later.

An A+ is better than an A, but an easy A is way better than the C–most people are currently scoring.

When you’ve finished this book, feel free to ask me anything on Twitter at @preetbanerjee. I’d love to hear from you and show you how to graduate from an A to an A+.



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