It seems like, to really start acting on financial advice, people need to find a source of advice that resonates with their own heart. Overall, it seems to have the shape of a spiritual journey, with components of discovery, emotional resonance, and inner work to change course. One doesn’t simply “do” their finances better for abstract reasons like “it’s good for you.” There has to be some deeper meaning behind it.
There are three books that really hit it for my household:
- The Complete Tightwad Gazette by Amy Dacyczyn
- Your Money or Your Life by Joe Dominguez and Vicki Robin
- The Millionaire Next Door by Thomas J Stanley, Ph.D. and William D. Danko, Ph.D.
The Complete Tightwad Gazette is the most immediately practical of the set, which earns it first place on the list. It is a mix of tips on things to do to save money, along with “showing the work” of the thinking that produced the tips, and an overarching philosophy to support thrift. Anti-consumerism and environmentalism make appearances, both of which are important values to us.
It is, after all, hard to ‘be true to yourself’ if you put ‘looking like everyone else’ first.
It’s worth noting that the book is a compilation of newsletters from the 1990s, making many specific tips dated. There are no terrycloth shirts at yard sales these days to be cut up into dish rags. Others, like the create-a-muffin recipe (one of the greatest ways ever invented to use up leftover ingredients), never go out of style. The larger philosophy, attitude, and skills behind the tips are also timeless.
This book is the one that got my wife excited about trading a side hustle for “working” exclusively on saving money, a trade that was ultimately far more valuable.
Your Money or Your Life is ostensibly financial advice, but it is also hedonic advice. It begins with a system that focuses on “making spending worthwhile.” One tracks spending, and then considers, “was that worth the amount of time I spent at work to pay for it?” It focuses on having enough at first, saving and investing the excess, and later turns to building more life satisfaction.
In some sense, money is incidental to this book. It’s not a book about making money to make money; it’s about making meaning.
While my partner and I did not choose to use the system precisely and forever, it was an excellent place to start. Once we tracked every penny spent, we quickly broke the habits that were actually just wasting money, and then it wasn’t as pressing to track everything. While we are not following it exactly as written, it continues to inform our attitude today.
(It just seems to work fine for me to ask myself, before purchase, whether the item is really worth the time its price represents. I don’t get much out of pulling a month of spending together and looking backwards at it. By then, it has happened, and it doesn’t feel changeable.)
The Millionaire Next Door is not a book with financial advice. The intended reader is someone with “a product to sell” who wants to better target millionaires. As such, it paints a portrait of the “average millionaire,” and compares it to societal ideas of what a millionaire is.
In short, it’s about how so-called “signifiers of wealth” are poorly correlated to genuine wealth.
This book is useful in that it provides a counterpoint to the obsession with the brand choices of the absurdly rich and famous. There’s a millionaire who asks his friends to cancel the order of the Rolls Royce that they were making as a gift for him (which they do), because he doesn’t want to trade practicality and social cohesion for ostentation.
(In one of my early jobs, people absolutely hated the owner of the business for ordering a large SUV, paid in cash, before the model year was even available on the dealer lots. Mr. Not-How-I-Rolls has a lot of wisdom here.)
The Millionaire Next Door isn’t direct advice to the common man, but it helped me and my partner to redefine “what success looks like.” It sort of validated our situation; yes, our neighborhood is imperfect, but not everyone around us is getting behind the wheel of a new luxury car every year or two.
And I don’t have to learn to play golf, ever. Now that’s a win-win scenario.
I’m sure I heard other advice. “Buy and hold!” Where does a 25-year-old get the money to buy? I didn’t feel like I could quite afford my life at that time, so how was I going to invest anything? I tried a bit anyway, but at my small scale, transaction and management fees wiped out the actual gains. Nobody had mentioned that the funds and brokers pay themselves first.
Transaction fees especially bite the investor who wants a diverse portfolio. If one buys into mutual funds, they’re not holding, exactly; but if one buys into individual stocks, one must make a hundred times more transactions to spread risk.
In either case, it’s a lot to ask of someone young. Get together thousands of dollars minimum to buy into a fund, or get together tens of thousands of dollars to buy a hundred individual stocks?
People also don’t acknowledge the pain of getting started. When I contributed 3% of my modest paycheck to the first 401(k) plan, it looked like I would need to work for hundreds of years to be able to live on that indefinitely. (With compounting, which I didn’t know how to account for, the picture is not so bleak.) It was soul-crushing, and it made me not want to save anything more. I continued to “take advantage of the free money [the match rate],” but did no more than that for a decade. (It was better than nothing. But it’s a lot worse than I could have done.)
The “market will return 8%” or “market will return 6% after inflation” guidelines are also flawed. Don’t forget the “after 20 years, on average” qualifier, and then ask a 25- or 30-year-old to wait 20 years to check their progress. How will that go?
On the other hand, being more thrifty at home can give immediate returns, possibly to the level of, “I don’t know where all this money came from?” And if one focuses on building happiness and shedding wasteful spending at the same time, it’s deeply satisfying. Whenever I don’t spend on what I don’t want, that’s a victory against The System.
Honorable mention: a relative asked us to buy/gift Breaking Free from Broke by George Kamel, a Ramsey personality. We did, and of course we also borrowed a copy from the library to read for ourselves, so that we’d be able to talk about it.
I was actually struck by how close the Ramsey system is to Your Money or Your Life. They end up in the same place, and they take roughly the same steps to get there. The major difference is that the Dominguez–Robin system starts with tracking spending, and lets a budget create itself from that effort. Ramsey works those steps in reverse: make the budget, then track spending to judge actual performance against the intentions in the budget.
The other thing I noticed in Breaking Free from Broke specifically is that it is so much more modern. There’s more focus on debt, including student and credit-card debt, which were both far smaller issues when Your Money or Your Life was being written.
Finally, for people who want to live free of a credit score, the Ramsey group is the place to be looking. I had not known about any of this early on, so I bootstrapped a credit score to be able to borrow money for car and house.
“But what if everyone reduced consumption? The economy would grind to a halt! We wouldn’t have things!”
For one, don’t worry. Human nature is working against it.
But for the other point… many dollars would still be spent, but on meaningful things. Do we really want a meaningless economy? Making the fake numbers go up, only so that people can remain so unfulfilled?