The 5 Money Books You MUST Read!
There are self-help books (and podcasts and so forth) on every conceivable topic! So, as you might expect, there are plenty about money as well.
But how can you sift through the garbage to find the gems? Well, I can't claim to have read everything, but I can share the most helpful books that I've found. So, I've compiled a brief list of my favorites, including a couple that may surprise you!
1. The Millionaire Next Door by Thomas Stanley and William Danko
Amazon; about $10 used
The 'money' quotes:
"Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and most of all, self-discipline."
and
"Our research indicates that even these top earners cannot have their cake and eat it, too."
2. The Rational Animal by Douglas Kenrick and Vladas Griskevicius
Amazon, also available for ~$10 used
Amazon, also available for ~$10 used
However, as behavioral finance experts have realized, human behavior is inseparable from personal finance. Money never acts on its own! Therefore, a better understanding of how we think may be more beneficial than you'd expect...
This relatively easy read provides great insight into why we do the seemingly unreasonable things that we do, such as spending money on things with no functional value, or spending absurd sums of money on goods like luxury cars.
One finding they discuss in Chapter 7 is extremely relevant to personal finance: the idea of 'fast' vs. 'slow' lifestyles. People who grow up in poor or otherwise very uncertain circumstances tend to follow a 'fast' lifestyle; that is, they worry only about the present. People who grow up in stable environments, however, tend to plan for a future that they see as almost guaranteed to arrive. Each strategy has its benefits—and its drawbacks.
I won't try to summarize this idea any further, out of fear that I'll either oversimplify the topic or go on an extended discussion. Instead, you should read it for yourself!
Based on academic research yet conversational in tone, this eye-opening book can make you re-evaluate what you thought you knew about human rationality.
The 'money' quote:
"...our decision-making, rather than being rational or irrational, is characterized by deep rationality. Our choices today reflect a deep-seated evolutionary wisdom, honed by our ancestors' past successes and failures."
3. The Little Book of Common Sense Investing by John C. Bogle
Amazon, also ~$10 used
If you have the self-discipline to consistently live below your means and save/invest regularly, you have the self-discipline to stick to your financial plan—and to follow Bogle's sage advice.
I've already advocated a relatively simple, low-cost portfolio that should work particularly well for younger people. Buy-and-hold index investing isn't flashy or appealing. It just works.
The 'money' quotes:
"After the deduction of the costs of investing, beating the stock market
is a loser's game."
is a loser's game."
and
"Experience conclusively shows that index-fund buyers are likely to obtain results exceeding those of the typical fund manager...the index fund is a sensible, serviceable method for obtaining the market's rate of return with absolutely no effort and minimal expense."
4. The Logic of Failure by Dietrich Dörner, translated by Rita & Robert Kimber
Amazon; under $10 used
One of my all-time favorite nonfiction books, though I am less impressed by it now than I was when I first read it (about 8 years ago).
It provides a thorough overview of how people fail to grasp the true nature of complex, dynamic systems with a number of interrelated subsystems and feedback loops—i.e., the real world.
A variety of experiments, as well as stories of actual failures in real life, demonstrate that people are generally bad at regulating systems. People tend to underestimate exponential growth rates, misunderstand and misinterpret statistical information, fail to account for time lag, and overreact to bad situations that require intervention.
Though there are several illustrations of this, my favorite example comes in the form of an easy-to-understand illustration: a simulation of a supermarket freezer with a broken thermometer. It's getting too warm, and perishable goods are in danger of going bad. But, unfortunately, the thermometer is broken, and the regulator has to be adjusted manually to reach the target temperature of 4 degrees Celsius.
The vast majority of participants made one of three major mistakes:
1) They developed an overly complex—and completely useless—ritual in an attempt to protect a pet hypothesis,
2) They overgeneralized from a particular experience, such as 'The temperature hit the right mark after I set the regulator from 95 to 87, so in order to obtain the desired effect, I have to move the setting from 95 to 87,'
or 3) They gave up on trying to derive a logical connection between action and effect. This led participants to suspect a trick and revolt against the 'lying' experimenter's directions.
Of course, the system did operate in a logical and predictable manner—just like a real freezer—and had a particular setting that would stabilize the freezer at the proper temperature.
The people who performed best on this task simply made a small initial adjustment and waited for the system to stabilize. They observed the outcome, made the next adjustment, and waited for that outcome. People who followed this approach arrived at the proper setting most quickly, and without inducing wild temperature variations.
But the majority of participants simply grew impatient and failed to account for the time delay between a) changing the setting, and b) the freezer stabilizing at a new temperature.
So it is with regulating any real-world system. People plan too much, or not enough; they wrongly conclude that an overly specific course of action is necessary, or they wrongly conclude that the system is uncontrollable; they underestimate the extent of a pattern of exponential growth, or they assume that the growth will continue indefinitely!
In sum, this book gives an overview of all the things that can (and often do) go wrong when we try to control things. A major takeaway from this book, as I understood it, is that good decision-making tends to involve two factors:
- Caution. Don't jump in with both feet; rather, make a small change in the direction you want to go and then wait for the system to shake itself out. There will almost certainly be unintended consequences; only time can reveal these.
- The constant search for feedback. People too often blind themselves to the consequences of their actions, so that they can continue in a state of blissful ignorance. The most successful people in the experiments summarized here sought to identify what could be going wrong and why.
The 'money' quotes:
"People with good intentions rarely have qualms about pursuing their goals. As a result, incompetence that would otherwise have remained harmless
often becomes dangerous..."
often becomes dangerous..."
and
"...we cannot do just one thing. Whether we like it or not,
whatever we do has multiple effects."
whatever we do has multiple effects."
and
"...tendency to 'oversteer' is characteristic of human interaction with dynamic systems."
5. Die Broke by Stephen Pollan and Mark Levine
Amazon, well under $10 used
Despite the foolish-sounding title, there's a lot of wisdom in this book. [Even worse was the tagline on the edition I read: "The last check you write should be to the undertaker—and it should bounce!" Enough to give nightmares to the fiscally responsible, isn't it?...]
Inflammatory language aside, this book encourages you to shed the expectations of others and navigate your own course. Pretty responsible advice, huh?
For example: rather than leave a windfall to your heirs or your favorite charity after you die, why not give smaller and more frequent gifts while you're alive to enjoy the thanks? This approach has the added benefit of not enabling shortsighted decisions by your heirs or other recipients of a big, one-time windfall. You know how most lottery winners go broke within 5 years? Yeah, the same thing probably happens (on a smaller scale) when you accumulate $1.5 million and leave it to your kids...
*[By the way, the study that everyone cites for the common claim that "70% of lottery winners go broke within 5 years" is freely available here, and it does not say any such thing! This goes to show that 'journalists' often don't actually read the papers they cite...]*
This book provides a number of helpful suggestions on how to make best use of available resources like trusts and annuities to ensure that you can a) have a steady income for the rest of your life, and b) structure charitable gifts in a way that makes sense.
Granted, Die Broke is aimed at white-collar workers, and those whose skills are clerical or managerial, rather than a more physical occupation like working in a factory or as an electrician, or even those working in a quickly-changing field like computer programming (in which a skill that's in high demand today may be obsolete next week).
It's worth reading, however. Die Broke will probably give you new ideas that you didn't even know you should consider! And if you're thinking about estate planning, then you will definitely find this book helpful...
The 'money' quotes:
"When you actually examine them closely, the old rules you've been following are...a very unhealthy philosophy."
and
"Each of the rules of the past comes with an implicit goal, whether it's the top rung of the corporate ladder, having the most toys, full retirement at age sixty-five, or dying rich. When you were handed these rules, you were also handed these goals and told they were your aims in life."
$50 for these 5 books is a more productive use of your money than a fidget spinner! 😂
Because my work is in it!
Kinda kidding, kinda not.
The format is a bunch of stories from many different people, some of whom write their own blogs and some of whom just read the excellent jlcollinsnh blog and had their own idea for a submission.
I am one of the bloggers who submitted a story. In fact, I submitted an edited version of this very post, and to my surprise, it was accepted for inclusion!
The dozens of submitted stories are grouped into one of nine different categories, including Debt, Saving, Investing, Lifestyle Inflation, and Staying the Course. I don't recall off the top of my head, but I'm sure there are over 100 different stories, many of which are quite brief.
It's inspiring, because the stories all come from people just like you (or perhaps with even humbler backgrounds). If they can do it, so can you!
But it's also informative, thanks in part to the stories from international readers who may have a different perspective than you've heard before. This includes a story from somebody in Ukraine, written shortly after the Russian invasion of that country, and another story from a reader in Russia who is reflecting on how to invest when your country has become an international pariah - because of the invasion of Ukraine!
It's definitely a worthwhile read. Check it out!
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